Franchisor recovering admin costs from a franchisee
CAN A FRANCHISOR RECOVER ANY ADMIN COSTS FROM A FRANCHISEE THAT CANCELS A FRANCHISE AGREEMENT DURING THE COOLING-OFF PERIOD?
Section 7(2) of the Consumer Protection Act No. 68 of 2008 (CPA) states that “a Franchisee may cancel a franchise agreement without cost or penalty within 10 (ten) business days after signing such agreement, by giving written notice to the Franchisor”.
Responding to this clause, some Franchisors are uncertain whether they are entitled to recover any administrative costs that they may have incurred in investigating the prospective Franchisee. Such costs could include, but are not limited to: costs incurred by the Franchisor in the course of evaluating a site and/or preparing a business plan for the potential Franchisee.
I am of the opinion that the phrase “without cost” referred to at clause 7(2) of the CPA would preclude a Franchisor from recovering any costs whatsoever from the Franchisee if the Franchisee has elected to cancel the franchise agreement during the cooling-off period. I would strongly recommend that a Franchisor adopts this conservative attitude as it seems that this is what the legislature intended.
My conclusion is that the Franchisee must not be penalized in any manner whatsoever (whether it is in any form of cost recovery or by imposing a penalty) in the event that the Franchisee decides to cancel the franchise agreement within the cooling-off period as contemplated at clause 7(2) of the CPA.
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