Franchise renewal in Colombia: what to agree

When franchising an existing business, it is easy to focus on opening and leave what happens when the contract expires until later. Yet poorly defined renewal terms can create conflicting expectations: the franchisee expects to continue, while the franchisor assumes it can change all the terms. To build a stable franchise network, agree on a clear, verifiable procedure from the outset, rather than promising indefinite continuity.

1. Define what renewal means and the legal framework that applies

In Colombia, a franchise agreement is an ‘atypical’ contract: it has no dedicated, comprehensive contractual regulatory framework. It is governed by what the parties agree and by the applicable general rules, particularly the Commercial Code and, where relevant, the Civil Code. Good faith must also guide the negotiation and performance of agreements.

The document published by Colombia’s Ministry of Trade, Industry and Tourism in 2021 on technical conditions for franchises is a draft decree. It should not be presented as legislation in force or used to claim that a franchise offering circular must be provided twenty working days in advance. Nor is there a dedicated general register of franchise offerings equivalent to those found in some other countries.

Within this framework, distinguish between three possibilities:

• Extension: the term of the existing contract is extended, with any expressly agreed amendments.
• Renewal through a new agreement: continuing the relationship requires the terms for the next period to be formalised.
• Agreed automatic continuation: this takes effect in accordance with the conditions and notice provisions set out in the contract.

Choosing a label is not enough. The document must explain what happens, for how long and what action is required. Franchise renewal should not be confused with renewal of the lease for the premises, which may be subject to its own statutory rules.

2. Make continuation a predictable process

Before offering your first franchise, prepare a sequence of steps that both parties can follow. The timetable should allow enough time to review performance, identify outstanding issues and reach a decision without leaving essential matters unresolved as expiry approaches.

Include the following in the contract or a signed schedule:

• Who must initiate the process and by what means.
• How far in advance continuation must be requested.
• Which documents the franchisee must provide.
• The deadline for the franchisor’s response.
• How any concerns will be communicated and when they can be addressed.
• The deadline for signing the final agreement.

Distinguish the right to request renewal from the right to obtain it. If continuation depends on objective conditions, identify them. If it requires a new commercial agreement, say so explicitly, and avoid presenting renewal as guaranteed during the sales process.

Also specify the effect of silence. Do not leave the parties to interpret whether a lack of response means acceptance, rejection or simply that the assessment is still pending.

3. Use verifiable criteria, not unexpected decisions

A clause allowing renewal only ‘to the franchisor’s satisfaction’ leaves too much room for disagreement. It is better to establish criteria linked to known obligations and available evidence.

For example, the review might cover payment compliance, the validity of permits needed to operate and whether documented breaches have been remedied. These criteria should be relevant to the business and applied consistently across the franchise network.

Avoid turning minor issues that have already been resolved into unexpected obstacles. Distinguish between an outstanding issue that can be remedied and a circumstance that prevents continuation, and retain records of communications and responses.

If operational indicators will be used, define them and specify the source of the information. Do not introduce a sales target at the last minute that was never agreed as a condition of renewal. The review should verify compliance, not rewrite the rules retrospectively.

4. Set limits on changes and document the next term

Renewal does not necessarily mean keeping every term unchanged. Nor, however, should it become blanket authorisation to impose any change. From the initial contract onwards, explain which matters may be renegotiated and how the new terms will be presented.

If fees, the operating format or upgrade requirements may change, provide for these changes to be communicated before the decision is made. Avoid wording such as ‘the brand’s then-current contract will be signed’ without a mechanism for accessing and assessing that document.

Before formalising the agreement, check that the rights to use the trade mark and other necessary assets cover the new term. Also verify the signatories’ authority and consistency between the contract, schedules and commercial communications.

If negotiations are still ongoing close to expiry, any temporary extension should be documented, with its duration and effects clearly defined. Do not rely solely on continued invoicing as evidence of what has been agreed.

Practical takeaway: before recruiting franchisees, prepare a continuation clause, a timetable and an evidence checklist. Have them reviewed by a legal adviser qualified in Colombian law, and make sure your sales promises match the contract.