Franchise Territories and Exclusivity in Colombia

When turning an existing business into a franchise, promising an ‘exclusive territory’ may seem like a straightforward way to attract your first franchisee. However, that phrase can lead to disputes if it does not clarify what happens with company-owned outlets, deliveries or online sales. To build a sustainable franchise network, territories must be defined through verifiable rules, rather than expectations.

1. Distinguish between territory, location and exclusivity

These are three separate decisions. The authorised location is the premises from which the franchisee will operate. The territory is the geographical area to which certain rights and obligations apply. Exclusivity is a specific commitment not to carry out or allow certain activities within that area.

Before drafting the agreement, answer these questions:

• Will the franchisee be allowed to open one outlet or several?
• Does the protection prevent new franchised outlets, company-owned outlets or both?
• Does it cover all products and formats, or only the format covered by the agreement?
• Are any customers, outlets or channels excluded?

Do not promise an entire city simply for convenience. Assess service capacity, travel times, observed demand and the business’s expansion plans. A large territory can block future openings even if the first franchisee lacks the capacity to serve it.

Prepare a schedule containing a map, boundaries and a written description. If you use neighbourhoods, postcodes or a radius, specify a precise reference point and how any discrepancies between the map and the text will be resolved. Avoid expressions such as ‘area of influence’ unless you also explain how it is determined.

2. Separate rights by sales channel

A geographical boundary alone does not determine who fulfils an online purchase. A customer may live in one area, work in another and collect their order from a third location. It is therefore useful to create a matrix with four columns: channel, party responsible for the sale, party responsible for delivery and the rule for allocating the sale.

Include, where relevant:

• In-store purchases and orders collected from the outlet.
• Orders placed through the brand’s website.
• Deliveries through third-party platforms.
• Sales to businesses with multiple locations.
• Trade fairs, pop-up outlets and other special formats.

For example, you might agree that orders placed through the central website will be allocated according to the delivery address and the outlet’s operational capacity. If the outlet cannot fulfil them, the agreement should provide an alternative and explain the financial implications.

Also identify the original business’s existing operations. If you intend to retain a national corporate account or a centralised digital channel, disclose this and explicitly define its scope. A blanket reservation of ‘all future channels’ may render the protection the franchisee believes they are acquiring meaningless.

3. Turn conditions into measurable commitments

Exclusivity can be conditional, but those conditions must be understandable and consistent with the support the franchisor offers. It is not enough to demand ‘satisfactory results’ while reserving the right to change the territory unilaterally.

Define the following in the agreement:

• Measure: which obligation will be assessed and how it will be measured.
• Evidence: which records will be used to verify compliance.
• Assessment period: when assessment begins and how often it takes place.
• Remedial process: how any failure to meet the requirements will be notified and what opportunity there will be to remedy it.
• Consequence: whether exclusivity may be reviewed, the territory reduced by agreement or another agreed remedy applied.

Allow for circumstances that are not solely within the franchisee’s control, such as supply interruptions attributable to the franchisor. Distinguish between losing exclusivity and terminating the agreement: they are not necessarily the same outcome.

Also establish how a relocation, a second outlet or a change to the territory will be approved. Documenting these changes prevents informal discussions from contradicting the signed agreement.

4. Review the agreement under Colombian law

In Colombia, franchising is an atypical contract: there is no dedicated law comprehensively governing the relationship. As Colombia’s Ministry of Justice explains in its guidance on franchise agreements, the relationship is governed by the agreed terms and the general rules applicable to commercial contracts. The Commercial Code and, where applicable, the Civil Code are relevant, including the principles of good faith and the binding force of contracts.

Freedom of contract is not absolute. Exclusivity arrangements and territorial restrictions require review under competition law, including Law 155 of 1959, Decree 2153 of 1992 and Law 1340 of 2009. Law 256 of 1996 governs unfair competition; it is not a dedicated franchise law. A clause does not become valid simply because both parties sign it.

There is no general requirement to register a business model or franchise agreement with Colombia’s Superintendence of Industry and Commerce (SIC). Nor is there a general legal obligation to provide a franchise offering circular within a specific franchise-related deadline. This does not remove duties of good faith or other applicable formalities, such as those relating to industrial property rights.

Practical conclusion: before offering exclusivity, prepare a map, a sales-channel matrix and verifiable conditions. Have them reviewed for legal and commercial consistency before incorporating them into your first agreement.