Franchise reservations in Argentina: how to document them

When a business starts franchising, it may receive a tempting proposal: accept a reservation payment while a prospective franchisee secures financing or completes their assessment. Without clear rules, that payment can create conflicting expectations. To build a sustainable franchise network, it is best to put the reservation arrangements in place before offering them, rather than after receiving the money.

1. Define the commitment you want to make

The word ‘reservation’ does not, on its own, explain what the parties are agreeing to. It might mean temporarily pausing discussions with other candidates, taking an advance payment towards the franchise fee, or committing to enter into a future contract. Each option has different consequences.

Before drafting the document, answer these questions:

• What exactly does the prospective franchisee receive in return for the payment?
• What still needs to be assessed or approved?
• Can the franchisor continue negotiating with other people?
• Is there an obligation to enter into a contract, or simply to continue discussions?
• When does the commitment end, and what happens to the money?

The document’s title is no substitute for its content. Calling it a ‘non-binding reservation’ does not remove obligations established by its clauses. If it contains a promise to enter into a franchise agreement, it must also be reviewed under the rules on preliminary contracts in Argentina’s Civil and Commercial Code.

For a business just beginning to expand, a prudent option is to limit the reservation to specific actions, with a clear expiry date and without yet granting the right to operate under the brand.

2. Organise the information before taking payment

In Argentina, franchising is specifically regulated by Articles 1512 to 1524 of the Civil and Commercial Code of the Nation, which has been in force since 2015. A reservation does not replace this framework or allow the franchisor to avoid its obligations.

Article 1514 requires the franchisor, before the contract is signed, to provide economic and financial information covering two years of performance of outlets similar to the one being offered, which have operated for a sufficient period in Argentina or abroad. When structuring a reservation, the key point is that the payment should not put pressure on the prospective franchisee to decide without access to relevant information.

As good practice, provide details in advance of the scope of the proposal, the expected financial commitments, the reservation terms and the available draft contract. Record which version the prospective franchisee received and when. If any documents remain outstanding, identify them expressly and avoid presenting the assessment as complete.

Do not confuse a draft law with a current legal obligation. The publication of a bill proposing a Register of Franchisors and a minimum twenty-day advance disclosure period does not, in itself, make those proposals applicable law. These requirements do not appear in the Code’s chapter on franchising.

Article 991 also establishes a duty of good faith during preliminary negotiations. Even without a final contract, there may therefore be consequences if one party unjustifiably causes negotiations to fail and harms someone who, through no fault of their own, relied on the contract being concluded.

3. Set out the payment rules and outstanding conditions

The document must identify the parties, the authority of the signatories, the amount, the currency, the payment method and the corresponding proof of payment. It must also state whether the sum will be credited towards the initial franchise fee when the franchise agreement is concluded.

Do not use ‘reservation payment’, ‘earnest money’ and ‘advance payment’ interchangeably. Article 1059 of the Code governs earnest money, known locally as seña or arras, and treats it as confirming the transaction unless a right to withdraw has been agreed. Determining its legal status requires a review of the agreement as a whole.

Prepare a simple table of possible scenarios:

Situation	What the document should cover
The franchise agreement is signed	How the amount paid is credited
An agreed condition is not met	Whether a refund is due and within what timeframe
The prospective franchisee withdraws	The expressly agreed financial consequences
The franchisor decides not to proceed	Repayment and any other applicable consequences
The reservation expires without a decision	Closure of the process or a written extension

Outstanding conditions must be verifiable: for example, providing evidence of funds or submitting specified documents. Assign responsibilities and deadlines. Avoid making everything subject to open-ended approval by the franchisor.

If expenses may be deducted, define which expenses, how they must be evidenced and what limit applies. Retaining money for expenses should not be treated as automatically valid: it requires a contractual basis and legal review.

4. Plan the closing process from the outset

Appoint someone to monitor deadlines, record communications and coordinate refunds. Any change to the terms must be documented and accepted by both parties.

Nor should silence in the reservation document be taken to authorise mandatory purchases, public use of the brand or opening announcements. Specify which actions are permitted while the proposed arrangement is being assessed.

Practical conclusion: before taking payment, prepare a document reviewed by a lawyer, a list of the information supplied and a procedure for closing the process. A well-designed reservation gives structure to negotiations; it does not replace the franchise agreement.