Most franchise relationships start with shared optimism. The franchisor has a proven brand and system, and the franchisee brings capital and hard work. When trading conditions tighten, support falls short or royalties feel too high, that relationship can break down quickly, and the franchise agreement becomes the most important document in the business.
A 2025 decision of the Supreme Court of Appeal involving a water franchise network shows what is at stake. A large group of franchisees terminated their agreements, alleging repudiation by the franchisor, and continued trading under a new name. The court upheld the franchisor’s right to protect its trade marks and genuine confidential information, but refused to enforce a clause that would have let the franchisor take back equipment the franchisees had paid for, finding it unreasonably one-sided under the Consumer Protection Act.
This article explains the rules that govern franchise disputes and termination in South Africa, and how both sides can protect themselves.
The legal framework
Franchise agreements are primarily governed by their own terms and the common law of contract. They are also regulated by the Consumer Protection Act 68 of 2008 (CPA). Section 5 applies the CPA to franchise agreements, and the franchisee is protected as a consumer in that relationship regardless of its size or turnover. Section 7 and the CPA regulations add specific requirements:
- the franchise agreement must be in writing and signed by the franchisee;
- the regulations prescribe minimum content for the agreement and require a disclosure document to be given to the prospective franchisee at least 14 days before signing;
- contributions to marketing or advertising funds must be properly accounted for; and
- a franchisee may cancel the agreement without cost or penalty within 10 business days after signing, by written notice.
The CPA’s rules on unfair, unreasonable or unjust contract terms (section 48) and the court’s powers to deal with them (section 52) also apply. This is what allowed the court in the 2025 case to decline to enforce the equipment clause. The Competition Act 89 of 1998 may also be relevant, for example where a franchisor tries to fix the resale prices franchisees charge.
How a franchise agreement can end
Expiry
Most agreements run for a fixed term, with or without a right of renewal. If the franchisee has a renewal right, the agreement should set out the conditions clearly, such as being up to date with payments, refurbishing the premises or signing the franchisor’s then-current agreement.
Termination for breach
Franchise agreements usually allow the franchisor to terminate if the franchisee fails to pay royalties, breaches operating standards or damages the brand. Most require written notice and an opportunity to remedy the breach within a set period. Strict compliance matters. A termination that does not follow the agreed procedure may itself be a repudiation, exposing the terminating party to a damages claim.
Repudiation by the franchisor
Franchisees sometimes allege that the franchisor has repudiated the agreement, for example by failing to provide support, misusing the marketing fund or competing unfairly. Under the common law, the innocent party may then accept the repudiation and cancel. This is a high-risk step. If a court later finds there was no repudiation, the franchisee’s cancellation may be treated as a repudiation in its own right.
Termination by agreement
A negotiated exit, recorded in a written settlement, is often the most cost-effective option. It can deal with outstanding fees, stock, equipment, de-branding and any restraint in a single document.
What happens after termination
Most disputes are about what happens next. Typical post-termination provisions include:
- De-branding: removing signage, trade marks and trade dress, and returning manuals and confidential material;
- Restraints of trade: preventing the former franchisee from running a competing business for a period within a defined area;
- Premises: rights for the franchisor to take over the lease or buy the business; and
- Equipment and stock: buy-back rights, sometimes at a formula price.
Courts will generally enforce reasonable provisions that protect the franchisor’s brand, goodwill and genuinely confidential know-how. A restraint must protect a legitimate interest and be reasonable in duration, area and scope. As the 2025 decision shows, a franchisor should not expect to enforce clauses that go further than needed, such as taking assets the franchisee owns without paying for them, or treating general industry knowledge as a trade secret.
Resolving franchise disputes
Many franchise agreements require the parties to attempt negotiation or mediation before litigation, and some refer disputes to arbitration. These clauses are generally binding and should be followed. Urgent relief, such as an interdict to stop the use of a trade mark or confidential information, may still be available from the High Court. The CPA also provides routes to the National Consumer Commission, an accredited ombud or the National Consumer Tribunal in some cases.
Practical steps
For franchisors:
- Review your agreement and disclosure document for CPA compliance.
- Keep marketing fund contributions separate and properly accounted for.
- Make sure post-termination clauses protect your brand and know-how without being one-sided.
- Follow the notice and remedy procedures exactly before terminating.
- Document your support to franchisees, as this is often disputed later.
For franchisees:
- Read the disclosure document and agreement carefully, and take advice within the 10-day cooling-off period.
- Keep records of your complaints and the franchisor’s responses.
- Do not cancel or rebrand without advice on whether the franchisor’s conduct amounts to repudiation.
- Check what the restraint and equipment clauses mean for your exit before you act.
- Consider a negotiated exit before litigation.
How O’Reilly Law can help
We act for franchisors and franchisees. We draft and review franchise agreements and disclosure documents, advise on CPA compliance and termination rights, negotiate exits and settlements, and represent clients in franchise disputes, including urgent interdicts, arbitration and High Court litigation.
Facing a franchise dispute or planning an exit? Contact us before you take the next step.
Related reading: Franchising in South Africa: a legal guide · Cancelling a contract for breach or repudiation
This article is general information and not legal advice. Correct as at October 2026.