Buying a franchise in Colombia: checking the reservation payment

A brand may ask you to pay to reserve an opportunity while you assess the purchase. That payment needs to be reviewed in its own right: it does not necessarily mean you are acquiring the franchise, nor does it guarantee that you will get your money back if you decide not to proceed. When entering Colombia’s franchise market, it is wise to put in writing exactly what you are reserving, for how long and on what terms you can withdraw.

1. Identify what you receive in return for the reservation payment

Do not rely on the label given to the charge. Terms such as ‘reservation fee’, ‘holding payment’, ‘deposit’ or ‘advance payment’ can describe different arrangements. What matters is the specific obligation undertaken by whoever receives the money.

Before transferring any funds, ask for a document that answers these questions:

• What is being reserved? An opportunity to enter into a franchise agreement, a business format or a specified location.
• What will the brand do during that period? For example, refrain from offering the same opportunity to anyone else.
• How long does the commitment last? There should be an expiry date and a rule governing any extension.
• What happens to the money? Is it credited against a later payment, paid for a specific activity or subject to a refund?
• Who receives the payment? Identify the individual or company and verify their relationship with the party that would sign the franchise agreement.

Distinguish between a reservation and a commitment to buy. Even a short document can contain obligations to enter into a contract, penalties or statements of acceptance that go beyond what the sales representative described. A bank transfer receipt proves that payment was made, but does not replace a clear statement of its terms.

2. Understand the Colombian legal framework before paying

In Colombia, a franchise agreement is an ‘atypical’ contract: it is not governed by a specific, comprehensive statutory framework. Valid agreements between the parties apply, alongside the general provisions of the Commercial Code and, where relevant, the Civil Code. Good faith is also relevant during negotiations.

This does not mean that every term is valid simply because it has been signed, or that the contract is your only protection. It does mean that you should not assume there is a special refund rule covering every franchise reservation payment.

Nor is there a specific general obligation to provide a franchise disclosure document within a standard period before accepting money. The document published by Colombia’s Ministry of Commerce, Industry and Tourism (MinCIT) in 2021, which proposed such a disclosure document and a lead time of twenty working days, was a draft regulation. Its publication alone did not make it a binding requirement.

You should therefore negotiate enough time to review the transaction before making a non-refundable payment. Do not assume that you will have a right to withdraw of the kind available in certain consumer transactions: buying a franchise to run a business requires an assessment of the nature of the transaction and the applicable rules.

3. Agree the conditions for getting your money back

The phrase ‘refundable reservation payment’ is incomplete unless it explains what triggers a refund. Propose conditions that can be verified against documents and dates, rather than wording such as ‘if the process does not move forward’.

Circumstances you could negotiate include:

• The brand decides not to approve you as a franchisee.
• Financing specified as a condition of the purchase is not secured.
• The proposed location does not receive the agreed approval.
• The legal review identifies a significant obstacle, as defined in advance.
• The final contract contains financial terms that differ from those accepted when making the reservation.
• The franchisor fails to provide the promised documents within the agreed period.

These are conditions worth negotiating, not automatic rights to a refund in every case. Also establish what happens if you change your mind without any of these circumstances arising.

If expenses may be deducted, insist on specifying which expenses, what evidence is required to support them and the maximum amount. Avoid giving open-ended permission to retain ‘administrative expenses’. The agreement should set out the procedure for requesting a refund, the deadline for paying it and any deductions expressly accepted.

4. Plan for expiry and keep the evidence

The reservation should have a clear end point. When the deadline arrives, is the money refunded, is the agreement extended or is some amount forfeited? Do not let an informal conversation prolong the uncertainty indefinitely.

Before paying, keep the commercial offer, the signed agreement, the refund terms and the recipient’s details. Afterwards, retain proof of payment and request written confirmation that the money has been received and how it has been allocated. If the payment will be credited against the initial franchise fee, check that the final contract acknowledges that credit so you are not charged twice.

Practical conclusion: only make a reservation payment when you can explain what you are getting, when the commitment ends and in which circumstances you will get your money back. If those answers depend on a verbal promise, clarify them before transferring any funds.