Franchising in Colombia: how to agree an exclusive territory

A brand offering you a franchise that is ‘exclusive in your area’ does not mean that every sale in that area is protected. That protection depends on who can operate there, through which channels and subject to what exceptions. Before investing in Colombia’s franchise market, turn that sales promise into a clearly defined territorial agreement.

1. Distinguish an authorised location from exclusivity

A clause allowing you to open an outlet at a particular address does not necessarily prevent the franchisor from opening another nearby. Nor does it guarantee that you can relocate, open a second outlet or fulfil any order within the municipality.

It is worth separating three concepts:

• Authorised location: the premises from which you may operate.
• Operating territory: the area in which you may carry out the agreed activities.
• Territorial exclusivity: a commitment not to allow specified competing operations under the same brand within a defined area.

In Colombia, franchising is an ‘atypical’ contract: there is no comprehensive legal framework specifically governing it. The general contract rules in the Commercial Code apply, as do those in the Civil Code where relevant. Decision 486 of the Andean Community governs aspects of industrial property, including trade marks. Territorial agreements must also comply with competition law.

Colombia’s Ministry of Justice recognises that exclusivity may be agreed in favour of a franchisee for a defined territory. That protection does not arise automatically when you buy a franchise. Its scope must be expressly agreed, subject to applicable mandatory rules.

2. Draw a boundary both parties can verify

Expressions such as ‘the northern area’, ‘catchment area’ or ‘the vicinity of the premises’ leave too much room for interpretation. Ask for boundaries defined by roads, coordinates or administrative borders, supported by a map accepted by both parties.

If a radius is used, specify the point from which it is measured and whether the distance is calculated in a straight line or along roads. If neighbourhoods or municipalities are used, agree what happens if their boundaries or names change.

Before signing, ask for the following to be identified:

• The brand’s outlets already operating within the area.
• Openings that have been approved or committed to, even if they are not yet trading.
• Exempt formats, such as kiosks, temporary outlets or concessions within large retail stores.
• Operations run directly by the franchisor and those run by authorised third parties.

The exclusivity clause must state whom it binds and which activities it restricts. Banning new franchises is not enough if the franchisor remains free to open an unlimited number of its own outlets.

3. Include deliveries, online sales and business customers

A territory may look protected on a map while remaining commercially open through other channels. Ask what happens when a customer in your area buys through the brand’s website, uses a delivery app or requests service from another outlet.

Do not assume that this revenue belongs to you. Negotiate rules for allocating orders, handling returns and covering delivery costs. If there is compensation for sales fulfilled by another outlet, specify how it will be calculated, settled and verified.

Also review corporate accounts: a sale negotiated by head office could supply several sites within your territory. The contract should clarify who makes the sale, who provides the service and whether you have a role in the transaction.

Test the clause against specific situations: an online order delivered opposite your premises, a corporate sale within the neighbourhood and a temporary outlet in a nearby shopping centre. If the answers depend on future decisions without agreed criteria, the wording still needs to be more precise.

4. Review the conditions for retaining protection

Some proposals tie exclusivity to sales targets, opening dates or the development of new outlets. Consider whether you can meet these requirements with the resources you actually have available.

Where targets apply, ask for the performance measure, data source, measurement period and treatment of closures or interruptions beyond your control to be defined. Avoid agreeing to terms that allow the franchisor to change targets unilaterally and then withdraw protection because you fail to meet them.

Negotiate written notice, an opportunity to put matters right and proportionate consequences before any reduction in your territory. Distinguish between losing exclusivity and losing the right to operate: ambiguous wording should not blur the two.

5. Agree how to deal with territorial encroachment

Define how you will report an opening or sale that you believe breaches the agreement, what documents will allow it to be verified and how quickly the franchisor must respond. Agree corrective measures and, where appropriate, compensation arrangements reviewed by a lawyer.

Keep the commercial offer, the map and the agreed exceptions. A verbal promise ‘not to introduce competition’ is unlikely to offer the same clarity as a precisely defined obligation.

Practical conclusion: before paying, review the map, the channels covered, the exceptions and the conditions for retaining exclusivity together. If you cannot explain what is protected and what is not, you do not yet have a sufficiently clear basis for assessing that promise.