Franchising in Colombia: how to agree renewal terms

Buying a franchise means acquiring rights for a fixed period, not an indefinite licence to operate. Before joining a franchise network, it is worth understanding what will happen when that period expires. A clearly defined renewal clause lets you assess whether the business can continue without relying on verbal promises or financial terms that only become clear at the end.

1. Distinguish between renewal and renegotiation

Not every clause mentioning renewal grants the same rights. Some allow the franchisee to continue if specified requirements are met; others merely open the door to discussions about a future contract.

Identify which of these arrangements the franchisor is offering:

• Automatic renewal: the contract continues unless notice to the contrary is given within the agreed timeframe.
• Renewal on request: the franchisee must apply within a specified period and demonstrate that certain conditions have been met.
• New agreement: continuing requires further negotiation and both parties’ consent.

Wording such as ‘may be renewed by mutual agreement’ does not guarantee that you can continue. Nor is it enough for a sales adviser to say that the franchisor usually renews agreements with franchisees who operate successfully.

Ask for the contract to specify the length of the next term, how many renewals are permitted and whether the original contract remains in place or is replaced. If the decision rests with the franchisor, seek to define the approval criteria and require a written response giving reasons.

2. Understand the protection Colombian law provides

In Colombia, a franchise agreement is an atypical contract: it has no specific, comprehensive statutory framework. It is governed by the terms validly agreed between the parties and the general rules on commercial contracts and obligations in the Colombian Commercial Code, together with the relevant civil law provisions. Contracts must also be performed in good faith.

You should therefore not assume that paying on time or building a customer base gives you a general statutory right to renew a franchise. Continuation depends primarily on the contract, although potential abuses or breaches may warrant legal assessment in individual cases.

Law 1429 of 2010, which concerns business formalisation and job creation, is not a franchise law. Nor should the draft decree on franchising published by Colombia’s Ministry of Commerce, Industry and Tourism (MinCIT) in 2021 be treated as legislation in force. Publishing a draft does not turn its proposals into enforceable obligations.

Also distinguish between renewing the franchise and any renewal of the lease on commercial premises. These are separate relationships: any protection available to a tenant under the Commercial Code does not, in itself, oblige the franchisor to extend permission to use its system and brand.

3. Turn requirements into verifiable conditions

A clause requiring ‘satisfactory compliance’ leaves too much room for interpretation. Before signing, translate that wording into conditions that can be verified through documentary evidence.

Prepare a table with four columns: requirement, evidence, person responsible for verification and deadline. This might cover keeping payments up to date, meeting operating standards and submitting reports required under the contract. Each condition should refer to known obligations, not expectations that the franchisor can redefine without limits.

Pay particular attention to negotiating these points:

• Remediable breaches: which breaches can be put right, and through what procedure, before a renewal decision is made.
• Disputed obligations: how charges disputed in good faith will be handled while the issue is resolved.
• Verification: who will check that the requirements have been met and how the findings will be communicated.
• Response: when the franchisor must accept or reject the application, and what effect, if any, the parties agree its silence will have.

These mechanisms are proposals for negotiation, not automatic rights created by special legislation. A lawyer should check that the wording is consistent with the rest of the contract.

4. Budget for renewal and plan the timetable

Renewal may involve more than paying a fee. Ask whether there will be a new franchise fee, royalty adjustments, alterations to the premises or documentation costs. Request that the types of charges, the formulas for adjusting them and payment dates are defined from the outset.

Pay attention to any obligation to sign ‘the franchisor’s then-current agreement’. This wording could introduce terms different from those you used to assess the purchase. Seek agreement on when you will receive the new text and which terms may change.

When assessing the initial investment, use the term actually secured by the contract as your base case. Analyse renewal separately, particularly where it depends on further negotiation. Do not justify an investment that will be difficult to recoup by assuming an extension that no one has committed to.

Finally, record the dates for applying, reviewing, responding and signing. Specify how notices must be served and retain proof of delivery; do not rely solely on informal conversations with the sales team.

Practical conclusion: before buying, insist on clarity about three things: what right you have to continue, how you will demonstrate compliance and how much you will need to invest to renew.