Legal Guidelines for Franchisor and Franchisee

by | May 4, 2021 | Franchising

GUIDELINES TO ENSURE THAT FRANCHISORS AND FRANCHISEES OPERATE WITHIN THE LAW

The Franchisor may believe that once a franchise agreement has been signed with the Franchisee and if the agreement contains the pertinent details that they discussed, then it is indisputable. What could possibly go wrong if anything at all.

Criteria that the Franchisor should consider to ensure it works within the parameters of the law: 

  1. The franchise agreement must comply with the Consumer Protection Act (CPA), meaning that it the franchise agreement ought to contain the relevant details as set out in the regulations in terms of the CPA. Should the franchise agreement not contain these details, the Franchisee may resile from the agreement, affirming that the Franchisee may elect to get out of the agreement, attracting no penalty to the Franchisee. This means that the agreement is not binding on the Franchisee.
  1. The Franchisee must be given a ten-day cooling-off period from the date of signing the agreement in which to cancel the agreement. Should the Franchisee cancel the franchise agreement, then the Franchisee is not liable for any costs incurred by the Franchisor during the cooling-off period.
  1. Should a deposit be paid on date of signature of the franchise agreement, it ought not to be viewed as income for the Franchisor until the cooling-off period has expired.
  1. Options available to the Franchisor when enabling the Franchisee to facilitate operating the business successfully:

4.1      Conduct initial training and offer proper ongoing training;

4.2       Communicate regularly with the Franchisee and provide continued guidance; and

4.3       Notify the Franchisee as to whatever needs to be done.

Should a prospective Franchisee wish to purchase a franchised business, the following points should not be overlooked:

  1. Have the franchise agreement checked by an attorney.
  1. Have the disclosure document checked by an accountant to ascertain whether the financial projections in the disclosure document is feasible and realistic.
  1. Conduct a proper due diligence on the franchised operation. Gather as much information as possible on the franchised business.
  1. Contact the existing franchisees and determine whether they are satisfied with the franchised business.
  1. Communicate with the Franchisor should the Franchisee have any queries.
  1. Attend any training or meeting that the Franchisor provides.

These criteria will guide the Franchisor and Franchisee to operate their franchised businesses more effectively.

Maria D’Amico
ATTORNEY

© D’AMICO INCORPORATED ATTORNEYS

REFERENCES AND SUGGESTED READING

 

Disclaimer

This article has been compiled for information purposes only and does not constitute legal advice. Legal advice needs to be tailored to the specific needs and circumstances of the case on hand. It follows that  D’Amico Incorporated cannot accept liability for any loss or damage caused to any individual or entity that has acted or omitted to act on the basis of this information.

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