how to get out of a franchise agreement south africa

A franchisee can terminate the agreement if a franchisor:

• Fails to provide training and support as stipulated in the contract
• Commits fraud or misrepresents the potential profits
• Fails to protect the franchisee’s business opportunity or territory
• Goes bankrupt or becomes insolvent

Full Answer

Can I break my franchise agreement?

Assert Your Right to Terminate. Although most standard franchise agreements do not provide franchisee termination rights, some do; and, if you hired an attorney to negotiate your franchise agreement, you may have termination rights that are not available to other franchisees in the system.

How do you exit a franchise?

Once outside the cooling-off period, your options to exit the franchise are limited, but include:Surrendering your franchise back to the franchisor.Transferring/selling to a third party with the franchisor's consent.Establishing a franchisor breach of the franchise agreement.Abandonment.

Can I walk away from franchise?

Under most state laws, however, a franchisee who walks away from his franchise may be successfully sued by his franchisor for abandonment. Further, under many state laws, a franchisee who walks away from his franchise may forfeit some or all of the claims that he may have had against his franchisor.

Can a franchisee cancel a franchise agreement?

Terminating a franchise agreement A franchisor or franchisee can try to end an agreement early, or before the term expires.

What happens if you break a franchise agreement?

A franchisee that closes without terminating the franchise agreement is at risk of being liable to the franchisor for “lost future profits,” or the money the franchisor would have earned if the franchisee had stayed open for the life of the franchise agreement.

Can you give back a franchise?

A breach of the franchise agreement can force the franchisee to sell the franchise back to the franchisor. Even in circumstances such as these, the franchisor will want to keep the best foot forward for public relations reasons.

Is a franchise agreement legally binding?

After you've been accepted as a franchisee, the next step is to sign a franchisee agreement. This is a contract that is legally binding, between the franchisee and the franchisor, and it will detail how the relationship works.

What happens when you leave a franchise?

Most franchise agreements will state that a franchisee must pay a certain amount of money if they breach their agreement. This includes when a franchisee ends their agreement early. These are known as liquidated damages. There are a number of ways that this amount of money can be calculated.

What is red flag in franchising?

Red flags would include a high number of franchisee turnover, more outlets closed versus opened, high franchisee turnover coupled with low number of franchisee transfers. A high number of Sold But Not Opened franchises can be a red flag that would require a closer look.

Can the franchisor take my franchisee away from me?

Both the franchisor and the franchisee have the right to terminate the franchise agreement for the other's 'repudiatory breach' of contract. The expression 'repudiatory breach' is a breach of contract that is so serious that it brings the contract to an end.

How long does a franchise agreement last?

between five and 20 yearsThe typical length of a franchise agreement is between five and 20 years. A common reason for this general length of time is often the size of the franchisee's initial investment, though market conditions and the type of franchise can also be factors.

What happens if you default on a franchise?

Violating the terms of the franchise agreement can result in the franchisor declaring the franchisee in default. In some cases, a default might not allow an opportunity for cure and the franchisee can be terminated, losing his entire business.

What percentage of franchise owners fail?

National Franchise Statistics There are nearly 674,000 franchise owners, according to Zippia. The Bureau of Labor Statistics reports that about 20% of independent businesses close after two years.

What is domain dispute?

Domain Names. Domain name disputes occur when someone registers a domain name similar to that of someone else’s trademark. It is common practice for a business to register its trademark as a domain name in order for the public to easily identify the website and relate the name with the brand…. Franchise Agreements.

What is a trade mark in South Africa?

A trade mark is a mark which distinguishes your goods or services from goods or services of others in South Africa, or elsewhere. Trade Marks are register-able in terms of the South African Trade Marks….

Why are South African franchises invalid?

Portions of these agreements or, in some cases, the full agreements may very soon be found to be invalid because they may be found to be contrary to current South African legislation.

When did the Consumer Protection Act come into effect?

The Consumer Protection Regulations, which are referred to in the Consumer Protection Act will come into effect in the first half of 2011 and will then regulate the relationship between franchisors and their franchisees.

Which act contains specific provisions that are contrary to well established franchising principles?

More specifically, the Consumer Protection Act 68 of 2008 and the Competition Act 89 of 1998 contain specific provisions that are contrary to well established franchising principles. Principles like fixed pricing structures and the definition of exclusive franchisee territories are contrary to the provisions in the Competition Act. ...

Who represents franchisors?

Franchise attorneys represent the franchisor, as well as the franchisee. Your mark should be registered in the countries in which you offer your products or services under that mark. You should also consider filing in countries where you intend to use the mark in the future….

What is the deal with deposits in franchise agreements?

It is common practice, during the course of discussions between a franchisor and a prospective franchisee, with a view to concluding a franchise agreement, for the franchisor to require the franchisee to make payment of a deposit.

How did supermarkets flex their corporate muscle?

As more and more shopping malls and strip malls sprang up around the country, the big supermarkets flexed their corporate muscle by building in exclusivity clauses into their leases which often prevented smaller supermarkets, butchers, bakeries, greengrocers, and delis being part of the tenant mix.

What happens if a franchise agreement is not complied with?

If a franchise agreement contravenes, or does not comply with, the requirements of the CPA or the regulations, including the stipulations of the regulations in respect of deposits and initial payments, the agreement will be invalid, either in total or to the extent of the contravention.

Why is disclosure important when buying a franchise?

The importance of the disclosure document when buying a franchise. The key to making an educated decision when becoming a franchisee is to make sure that the franchise you are investigating has a Disclosure Document as required by the provision s of the Consumer Protection Act as they relate to franchising.

Does a franchise agreement transfer a business as a going concern?

The termination of a franchise agreement by the franchisor does not in itself constitute a transfer of a business as a going concern, even if the franchisor thereafter appoints another franchisee in the same area, and serving the same customers, as the previous franchisee. Therefore, the new franchisee is not obliged to take over the rights and obligations of the previous franchisee towards its employees, as is required in terms of section 197 of the Labour Relations Act on the transfer of a business as a going concern.

Can a franchise agreement be cancelled?

Franchise Agreements. A franchise agreement may be cancelled after the ten day cooling off period has expired, if: the agreement itself is invalid, or. where one of the parties has been induced to enter into it by a misrepresentation by the other, or. where one of the parties has committed a material breach of the agreement.

What is a lease agreement?

Lease agreement over premises. If a franchise operates from commercial premises, these will usually be rented. It’s common for the franchisor to help with site selection and lease negotiations. But in the end, the lease agreement will usually be between the owner of the premises and the franchisee.

What is financial arrangement?

Financial arrangements. The initial and ongoing rights and obligations of franchisor and franchisee respectively. It also needs to set out what will happen once the arrangement ends. The important point is the agreement has to be written in a language ordinary human beings without legal background can understand.

What information is required in a franchisor disclosure?

Here are the important details that must be in the disclosure document, a disclosure document must have: Full and traceable information about the franchisor company, its owners and its geographic location. Details of the background, qualifications and business experience of the franchisor’s officers.

How long does a franchise agreement have to be clear?

The terms must be clear in the franchise agreement – If, for example, the franchise agreement is for a period of 10 years, this must be clear. If there will be an option to renew, this has to be spelled out as well. If terms aren’t clear, there will be misunderstandings later on.

What is a disclosure document?

Disclosure document. A disclosure document is meant to give prospective franchisees detailed information on all aspects of the franchise offer. This helps ensure franchisees know what they’re getting themselves into, so to speak. The document essentially allows franchisees to make an informed decision.

What is NDA in franchising?

1. Secrecy undertaking/Non-disclosure agreement (NDA) Before you enter into a relationship with a franchisor, you (franchisee) must do research on all aspects of his/her business. The franchisor will also gather background information on you as the potential franchisee.

Do franchisees need funding?

Franchisees who need funding have to enter into one or more funding agreements. In most cases funding agreements are with banks. But in some cases, you may have to source private funding. For example, getting a friend to invest.

What are the concerns of the Competition Commission?

The concerns of the Competition Commission have included horizontal relationship collusion, vertical relationship collusion, retail price maintenance, exclusive territories, exclusive dealing, tying of products and intellectual property rights.

What is the cornerstone of the Trademarks Act?

or any combination of the aforementioned. It is often said that the cornerstone of the Trademarks Act is distinctiveness. To be capable of being registered and function as a trademark, the mark must distinguish the goods and services in relation to which it is used from the goods or services of others.

What is a termination clause?

The termination clause should be comprehensive in the best interests of the entire franchise system and/or other franchisees. In addition to standard provisions such as timeous payment, the clause should include provisions entitling the franchisor to cancel the Agreement if the franchisee fails to act in accordance with the operations and procedures manual, performs inadequately or maintains poor quality standards. Further, if there is any challenge on the proprietorship of the franchised intellectual property, this should also be a ground for possible termination of the Agreement.

What are the obligations of a franchisor?

The next essential part of the Agreement deals with the obligations of the franchisor. The franchisor’s obligations are divided into initial and ongoing obligations. Initially the franchisor will assist with the setting up of the premises or outlet, furnish the franchisee with the operations and procedures manual, disclose the entire franchise system to the franchisee and train the franchisee. Ongoing obligations of the franchisor includes additional necessary training from time to time and also to assist with problems, management and to provide guidance, in addition to the ongoing management and development of the franchise system. It is essential in the long-term best interests of the franchise system that the Agreement includes positive obligations and duties on the franchisor to render these services.

What is a payment clause?

Payment clause. The clauses relating to payment usually include at least three types of payment. These are the upfront lump sum, which is usually described as a franchise fee and which is paid to obtain the license or franchise.

What is the second type of license agreement?

The second type of License Agreement is that of a sole Franchise or License Agreement. Using the same example, in this instance the franchisee is given the sole right to operate a franchise or outlet in the specific area.

What should be included in a franchise agreement?

Definitions should therefore include the trademarks, copyright, trade dress, know-how, trade secrets and other intellectual property. The definitions should also include a description of the franchised business. Further, bearing in mind that the proprietor or holder of the intellectual property is allowing the franchisee to use the intellectual property, definitions should also be included as to precisely what intellectual property will be used in which territory and for what period. Provisions should therefore be included for inter alia the territory, commencement date, the termination date and renewal.