Franchise sector needs better regulation — professor

The legal framework for regulating franchising consisted mainly of the common law, supplemented by self-regulation by the voluntary body, the Franchise Association of SA . The legislature has recently passed the Consumer Protection Act, which will become effective in about October 2010. “This act will apply to franchising, but it is a law which applies to consumer protection and is not specific to franchising,” Woker said.

http://www.businessday.co.za
August 26, 2009

Franchise sector needs better regulation — professor
Lupert Chilwane

THERE had been little research on the law regulating the franchise sector in SA despite the growth in the industry over the past 15 years, Prof Tanya Woker, of the University of KwaZulu- Natal, said yesterday.

Woker said franchising was an important business model in SA.

“I am not talking about something new, but about the industry that has been with us for many years. Franchising has been identified by the government as a means of facilitating black economic empowerment,” Woker said.

The legal framework for regulating franchising consisted mainly of the common law, supplemented by self-regulation by the voluntary body, the Franchise Association of SA .

“The legislature has recently passed the Consumer Protection Act, which will become effective in about October 2010.

“This act will apply to franchising, but it is a law which applies to consumer protection and is not specific to franchising,” Woker said.

Talking about her study, Regulating Franchise Operations in SA: A study of the existing legal framework with suggestions for reform, Woker, who is also the chairwoman of the Consumer Affairs Committee, said though the Consumer Protection Act would solve some of the problems in the sector, legislation specifically for franchises was needed.

She said franchisees had many problems when it came to the disclosure of material information. They underestimated the cost of maintaining the franchise and the amount of work involved.

“They also tend to overestimate how much money they are going to make, especially when the franchisor paints a rosy picture for them,” Woker said.

Legislation should require the franchisor to give the franchisee enough information before concluding the agreement to make an informed decision, she said.

The power imbalance in the relationship between the franchisee and franchisor favoured the franchisor , who could terminate the relationship by giving notice or refusing to renew the franchise contract, she said.

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http://www.businessday.co.za/articles/Content.aspx?id=79588


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