A franchise agreement is a legally binding contract entered into between the owner of a brand (this is the ‘franchisor’) and a third party business (this is the ‘franchisee’) in terms whereof the franchisee is allowed to establish and operate a business using the franchisor’s brand name, get up, trade dress and intellectual property together with the franchisor’s system for the operation of the business.
It is the franchise agreement that governs the relationship between the franchisor and the franchisee, and it is the franchise agreement which licences, or allows, the franchisee to use the franchisor’s intellectual property (i.e. the brand) to conduct the franchisee’s business operations.
Well-known examples of franchised operations in South Africa include McDonald’s, KFC, Burger King, Kauai, Spur, Cash Crusaders, and Nando’s.
A big advantage to a person signing a franchise agreement with a well-known and established brand is that it enables the person to set up business operations incredibly quickly using the well-known brand name and then being able to commence trading using existing systems established by the franchisor.
The recently enacted Consumer Protection Act, 2008 (‘the CPA’), goes a long way in regulating the franchise relationship between a franchisor and a franchisee. Regulations passed in terms of the CPA provide various protections to a franchisee and in fact, gives a franchisee the right to cancel a franchise agreement within 10 (ten) days of signing it!
The important documents in a franchisor/franchisee relationship include –
Disclosure Document – the disclosure document contains key information about the franchisor, its franchise network, certain financial information, and other information pertaining to the particular franchise opportunity. The disclosure document must be given to the prospective franchisee at least 14 days prior to the signing of the franchise agreement.
Franchise Agreement – the franchise agreement sets out the legal rights, duties, and obligations of the franchisor and the franchisee.
Operating Manual –the operating manual contains the know-how and day-to-day operating procedures necessary for the franchisee to operate the franchise business successfully and in order to ensure that the franchisee is compliant with the franchise system.
Ashersons Attorneys has significant experience in the specialised area of franchising law.
Our team of lawyers can assist you in all aspects of franchising law, including advising on and drafting the franchise agreement, advising on the disclosure document, operating manual, and any ancillary documents required at the start of a franchise relationship between franchisor and franchisee, settling disputes between franchisor and franchisee, and the termination or cancellation of franchise agreements.