Is the Future of Franchising at Risk?
Highly politicised and hotly controversial, the term “expropriation” is a topic of widespread trepidation in South Africa traditionally associated with land. It is expected that the pending legislation will provide a degree of certainty surrounding this explosive topic, but land expropriation is not the focus of this discussion.
“Commercial expropriation”, insofar as it applies to general commercial agreements (and to franchising for purposes of this discussion), will understandably have a detrimental impact on the business sector going forward.
Essentially, a franchise agreement is the licensing of a business system by a franchisor to a franchisee, but which includes and involves the franchisor’s support, backing and provision of business assistance to the franchisee.
Currently, the Consumer Protection Act of 2008 affords protection to the franchisee, however there is still limited South African case law on this relatively immature branch of practice.
While both the franchisor and the franchisee have initial and ongoing obligations governed by the franchise agreement, once the tenure of franchise has concluded, the rights of the franchisee are traditionally restricted, and the unbundling of the relationship must commence.
In South Africa, franchising has traditionally offered a relatively low-risk investment while affording parties the opportunity to invest in a known enterprise while earning, managing and directing their own business.
With respects to petroleum, in recent years, petroleum franchisors have attempted to impose irregular franchise terms on franchisees, using what can be explained to be a dominant position to enforce and subsequently amend a franchise agreement. Together with the franchise agreement itself, the Petroleum Act of 2019 affords measured protection. In certain instances, the petroleum franchisees can turn to sporadic case law and atypical legislation to seek protection.
If the franchisors actions are left unchecked, unlawful commercial expropriation of franchisees will increase.
Faced with substantial losses, Petroleum franchisees are seeking clarity as to whether agreed site evaluations are not only enforceable but correct. It has become somewhat the norm for petroleum franchisors to try force a devaluation of the determined site price. Validly disputing these variations is a complex and meticulous process.
Should the petroleum franchisee dispute such unilateral amendments, the petroleum franchisee is frequently threatened with immediate eviction or the cessation of the provision of vital petroleum products. To prevent irregular actions, it is critical that the petroleum franchisor and franchisee continue to adhere to the franchise process and franchise agreement.
Adding further “fuel to the already combustible fire”, as the petroleum franchisee, the franchisee retail rights are precarious at best and the associated rights must be safeguarded.
To avoid the expenditure of unnecessary legal costs, the termination of the franchise agreement, prevention of commercial eviction and the termination of associated licences , a timeous consultation with a well-informed and experienced legal counsel is essential.