Franchising in Colombia: agree your exit terms before you buy

Before buying a franchise, imagine that you need to sell the business, the relationship ends early or the contract expires without renewal. Agreeing how to handle these scenarios is not a sign of mistrust: it allows you to join the franchise network with clear expectations. This guide explains which exit terms to review before signing or making any non-refundable payments.

1. Understand the protection Colombian law provides

Colombia has no specific law governing franchise agreements comprehensively. The Ministry of Justice describes a franchise agreement as an atypical contract: its terms depend on what the parties agree and the general rules applicable to commercial contracts.

The Commercial Code and Civil Code provide rules on obligations, good faith, breach of contract and contractual interpretation. Decision 486 of the Andean Community governs aspects of industrial property relevant to the use of trade marks and the protection of trade secrets. The parties cannot simply agree to override mandatory legal rules in their contract.

Nor is there a specific general requirement to provide a franchise offering circular or a disclosure document in the format required in some other countries. This does not remove the duty to act in good faith during negotiations. Request the full contract, its schedules and the exit terms in sufficient time for an independent review.

Do not assume you have an automatic right to recover the initial franchise fee, renew the agreement or receive compensation when the term expires. Each situation requires an assessment of the contract, the facts and the applicable law.

2. Distinguish between expiry, non-renewal and early termination

These scenarios are not the same. Expiry occurs when the agreed term ends; non-renewal prevents the relationship from continuing beyond that date; early termination ends it before the scheduled date.

Ask for the document to answer each of these questions separately:

• Term: when does it begin — on signing, handover of the premises or opening?
• Renewal: is it automatic, subject to objective requirements or dependent on a new agreement?
• Notice: who must give notice, by what means and how far in advance?
• New conditions: does renewal require refurbishment, another fee or acceptance of a different contract?
• Termination: which breaches allow termination, and which can be remedied?

Where appropriate, negotiate a notice procedure and a reasonable period to remedy breaches that can be put right. Avoid vague wording such as “any damage to the brand’s image” without criteria for identifying the conduct in question.

Also review what happens if the franchisor breaches the agreement — for example, by ceasing to provide support it has expressly committed to delivering. Both parties’ obligations and the procedures for making claims should be clear. Do not assume you can unilaterally stop paying royalties; that decision requires legal advice.

3. Check whether you can sell or transfer the business

Selling equipment or assigning a lease is not the same as transferring the franchise agreement. A buyer may acquire assets without obtaining permission to operate under the brand.

If you may wish to sell in future, request an assignment clause that clarifies:

• The experience and financial standing required of the new franchisee.
• The procedure and deadline for the franchisor to respond.
• Any assessment, training or transfer fees.
• Whether there is a right of first refusal and how it can be exercised.
• Whether the outgoing franchisee is released from obligations and guarantees, or remains bound by them.

Leaving the business does not mean you are released from your debts or guarantees. Ask for any agreed release to be explicit and documented. Separately review your obligations to the landlord, suppliers and financial institutions.

If you buy through a company, check whether a change in shareholders or control requires approval. Do not assume that selling shares allows you to bypass restrictions on assignment.

4. Put the closure procedure in writing

An exit needs an operational procedure, not just a date. Work with your lawyer to draw up a list of obligations that survive the contract and tasks to complete on the final day of trading.

Specify who is responsible for removing signage, returning manuals and disconnecting systems, and what will happen to the stock. If a stock buyback is promised, specify the eligible products, valuation method, deductions and payment deadline: do not assume that a buyback is mandatory.

Review confidentiality, non-compete and penalty clauses. Their scope and enforceability require legal assessment; appearing in the contract is not enough. Also clarify how personal data will be handled under Law 1581 of 2012, particularly when handing over customer databases.

Finally, establish how disputes will be resolved and what costs the agreed procedure may involve, including arbitration if that is chosen.

Practical conclusion: before buying, seek an independent review of four points: when the relationship ends, how it is renewed, whether it can be transferred and which obligations remain afterwards. Clear exit terms should be part of your decision to enter the franchise.