Buying a franchise in Colombia: reviewing the premises lease

Premises approved by the brand can become a problem if the lease does not allow you to operate for the intended period. Before buying a franchise in Colombia, review both agreements as interconnected commitments. In franchising, commercial approval of the premises is no substitute for a legal review of the lease, nor does it guarantee that you will recover your fit-out investment.

1. Identify who is letting the premises and what rights you will have

Not all arrangements work in the same way: you may lease directly from the owner, take a sublease from the franchisor or use premises that the franchisor controls under another agreement. This distinction determines whom you will pay, who can enforce the obligations and what happens if the underlying agreement ends.

Request the draft lease and, if there is a sublease, the agreement underpinning it. Check who has the authority to grant occupation of the premises and what permissions are required. Do not assume that the brand’s approval amounts to the landlord’s consent.

Resolve these questions:

• Does the permitted use allow you to operate the franchise’s full business format?
• Who authorises building work, signage, fixed equipment and alterations to the frontage?
• What restrictions apply to opening hours, deliveries and the use of shared areas?
• What happens to your occupation if the franchisor’s lease ends?

If your occupation depends on a head lease, ask to see its key dates and relevant grounds for termination. A promise in the franchise agreement that you can remain in the premises does not, by itself, bind the property owner.

2. Align the terms without confusing the legal protections

Colombia has no specific law comprehensively governing franchise agreements. A franchise agreement is an atypical contract, governed by its agreed terms and the applicable general provisions of the Commercial Code and Civil Code. Law 1429 of 2010 is not a franchise law.

Commercial premises leases, however, are subject to relevant specific provisions. Under certain conditions, Article 518 of the Commercial Code gives a business operator who has occupied a property with the same business establishment for at least two consecutive years a right to renewal, subject to statutory exceptions. This does not mean an unconditional right to remain or a rent freeze. The following articles govern matters such as disputes over renewal and certain notice requirements.

Renewing the lease does not automatically renew the franchise agreement, or vice versa. Ask a lawyer to compare both documents and assess how these rules apply to your circumstances.

Draw up a timeline covering handover of the premises, fit-out work, the date rent becomes payable and the expiry of each agreement. Negotiate what will happen if the franchise agreement remains in force but you lose the premises: whether relocation is possible, the conditions for approval and how financial commitments will be handled during the interruption.

3. Budget for occupying and handing back the premises

Comparing premises solely on monthly rent can conceal significant obligations. Request a written breakdown of property-related payments and distinguish those due to the landlord from those required by the brand.

Include the following in your assessment:

• Rent, the formula for increases and service charges.
• Utilities, maintenance and repairs for which you are responsible.
• Works required for the initial handover and eventual return of the space.
• Removal of signage, dismantling and reinstatement at the end of the lease.
• Costs that would continue to accrue while operations are suspended.

For building work, agree who approves the designs, who commissions the work and which improvements will remain part of the property. Do not budget on the assumption that the owner will reimburse your investment: any entitlement to compensation must have a clear basis and be legally reviewed.

If you negotiate a rent-free period for fitting out the premises, specify when it starts, how long it lasts and which charges it covers. The phrase ‘grace period’ does not, on its own, clarify whether you must pay service charges or utilities.

4. Avoid committing before you have viable premises

Signing an unconditional lease while the brand is still assessing the premises could leave you paying for a space you cannot use for that franchise. It is also risky to enter into binding commitments with the brand without securing the availability of the premises.

Negotiate written arrangements to coordinate both decisions, covering approval of the premises, the permissions needed to carry out alterations and the consequences if any condition is not met. These arrangements should specify dates, responsibilities and what happens to payments already made; a commercial discussion alone is not enough.

Before signing, bring together your legal adviser, the person responsible for franchise expansion and whoever prepared the budget. Review both agreements and the fit-out quotations together.

Practical takeaway: do not buy only the right to operate under a brand; confirm that you can occupy, adapt and hand back the premises on terms compatible with your investment.