Franchising in Colombia: agreeing equipment replacement terms

Essential equipment can fail before you have recouped your investment. It may also work perfectly well but no longer meet the brand’s specifications. Before buying a franchise in Colombia, it is worth agreeing how both situations will be handled. In franchising, distinguishing between maintenance, replacement and upgrades helps prevent unexpected expenditure and disputes over who must pay.

1. Identify the equipment you will have and the terms of supply

A single overall set-up figure is not enough. Prepare an inventory of the assets essential to running the business: machinery, refrigeration equipment, point-of-sale terminals, computers and any other equipment specific to the activity. For each item, record:

• Ownership and supply arrangements: purchase, lease or loan for use.
• Model, capacity and condition: new, used or refurbished.
• Warranty cover, exclusions and the procedure for requesting support.
• Maintenance requirements, availability of spare parts and technical support.
• Any software, licences or connections required for it to work.

Ownership matters: paying to use equipment does not mean you own it. Nor should you assume that the franchisor is responsible for defects if a third party sells it. Identify who is contractually responsible and request the relevant warranty documents.

Also ask what happens if a manufacturer stops producing spare parts. An inexpensive machine can become a liability if repairs require imports or it has to be replaced altogether.

2. Distinguish between wear and tear, breakdowns and brand upgrades

These situations need different rules. Preventive maintenance keeps equipment working; repairs address a fault; replacement involves substituting the asset; and upgrades respond to new technical or commercial requirements. A clause that groups them all under “necessary modifications” may leave too much open to interpretation.

Request a table setting out, for each situation, who decides, who pays and what evidence justifies the work. For example, replacement due to wear and tear could be supported by a technical assessment, while an upgrade to reflect the brand’s image should specify the standard it is intended to meet.

Negotiate terms to ensure that a supplier’s recommendation does not automatically become an obligation to buy. If a compatible, safe and technically equivalent alternative exists, establish how it will be assessed and who will authorise its use.

It is also worth distinguishing between an urgent safety issue and a cosmetic improvement. The former may require immediate action; the latter allows time to plan the expenditure. Applying the same deadline to both is unwise.

3. Make replacement costs something you can budget for

Ask for the contract or a signed annex to set out a procedure for notifying you of mandatory replacements. The notice should explain the reason, the equipment affected, the specifications and the planned implementation date.

You could propose the following terms during negotiations:

• A defined notice period, except where risks justify urgent action.
• An itemised estimate covering purchase, transport, installation and removal of the old equipment.
• The option to submit alternative quotations for technically equivalent equipment.
• Phased implementation where operationally feasible.
• Special rules for replacements required close to the end of the contract term.

These terms are not automatic rights: they must be agreed. If the brand requires a substantial investment when little operating time remains under the contract, ask how that imbalance will be addressed. Do not assume that renewal or compensation will follow.

Work with your accountant to build an equipment replacement reserve based on quotations and actual operating conditions. Accounting depreciation is not the same as having cash available to buy another machine. Also consider installation costs and the revenue you could lose during the changeover.

4. Define responsibilities and rules for interruptions

In Colombia, franchising is an “atypical” contract, meaning that there is no specific, comprehensive legal framework governing franchise agreements. The agreed terms, the general rules of the Commercial Code and relevant civil law provisions apply, including the principles of good faith. Freedom of contract does not allow parties to disregard mandatory legal rules.

A regulatory proposal should not be confused with an obligation already in force. The draft decree published by Colombia’s Ministry of Commerce, Industry and Tourism in 2021 envisaged information on reinvestment requirements and a franchise offering circular. Its status as a draft means those provisions cannot be treated as applicable legal requirements.

For this reason, expressly agree what will happen while essential equipment is out of service: technical support, temporary replacement equipment, permission to operate at reduced capacity and how contractual charges will be handled. Temporary closure does not automatically suspend payment obligations.

Keep records of faults, requests for support and responses. Before signing, have a legal adviser review the technical annex and check that it is consistent with the contract.

Practical conclusion: do not accept an open-ended obligation to replace equipment. Define the reasons, responsibilities, costs and deadlines, and check that you can fund replacement without relying on optimistic sales forecasts.