Reinvestment in Colombian Franchises: What to Agree

When franchising an existing business, calculating the cost of opening an outlet is not enough. You also need to decide who will pay for equipment replacement, branding updates and new technology. A clear reinvestment policy helps keep the business up to date without passing unpredictable costs on to the franchisee. Across a franchise network, this predictability helps build sustainable relationships.

1. Distinguish between maintenance, replacement and changes to the business model

Before drafting the contract, review your current operations and categorise the investments needed after opening. They do not all serve the same purpose or require the same approval process.

• Routine maintenance: repairs and upkeep needed to keep equipment and premises in suitable condition.
• Replacement due to wear and tear: replacing assets that have reached the end of their useful life or no longer serve their purpose.
• Business model updates: changes to furniture, branding or technology initiated by the franchisor.
• Regulatory compliance: work needed to meet legal requirements applicable to the premises or business activity.

For each category, identify who flags the need, who approves the scope and who bears the cost. A general obligation to maintain standards does not, on its own, explain how a full refurbishment will be funded.

Prepare an asset register with purchase dates, warranties and maintenance records. Use experience from your existing outlets to estimate future needs, without presenting an expected useful life as a guarantee of how long an asset will last.

2. Base the clause on Colombia’s actual legal framework

In Colombia, a franchise agreement is an ‘atypical’ contract: it is not governed by a comprehensive, dedicated statutory framework. It is governed by the agreed terms and the general rules that apply, particularly the Commercial Code and, where relevant, the Civil Code. Contractual good faith should guide both the definition and performance of reinvestment obligations.

The text on franchising published by the Ministry of Trade, Industry and Tourism in 2021 was a draft decree, not legislation that should be cited as being in force. Its reference to additional investment does not turn that proposal into a legal obligation. Nor should the franchise offering circular and twenty-working-day period included in that draft be presented as current national requirements.

Although there is no specific law setting out refurbishment requirements, it is advisable to agree them expressly. Commission a legal review to clarify:

• The categories of investment the franchisor may require.
• The process for giving notice, providing justification and obtaining approval.
• How costs will be shared and the deadlines for completion.
• How urgent situations and exceptional investments will be handled.

Health, safety and other requirements applicable to the business remain mandatory. The contract may allocate tasks and costs between the parties, but it cannot remove their legal responsibilities towards the authorities.

3. Set out how each update will be approved

Avoid a clause allowing any change to be imposed at any time, with no financial limits. Equally, do not promise to keep the format unchanged indefinitely: a business needs to adapt.

One practical option is to agree a staged process. First, the franchisor presents the need for the change, its technical scope and the estimated budget. The franchisee can then comment on costs, funding and disruption to operations. Finally, the timetable and responsibilities are documented.

For exceptional changes, the parties may agree an additional approval mechanism or a contractual spending cap, with clearly defined exceptions. There is no single percentage suitable for every business.

Where the franchisor initiates a change, it is advisable to test it first in an outlet it owns or controls. Assess installation, compatibility, maintenance and operational effects. An expected improvement is not a guarantee of profitability.

You should also clarify which costs accompany the purchase: transport, installation, licences, training and any days of closure. The equipment price rarely represents the full outlay.

4. Consider the remaining contract term and document changes

A major refurbishment at the start of the contract does not have the same impact as one close to expiry. Before requiring it, assess how much operating time remains and whether there are clear terms for continuing the relationship. Do not assume automatic renewal to justify the expense.

The parties may negotiate phased implementation, shared contributions or contractual adjustments. These options must be recorded in writing; they are not automatic rights of the franchisee.

Keep a record for each project, including the approved budget, those responsible, dates, warranties and proof of delivery. If a financial obligation changes, formalise the relevant agreement: a new version of the manual should not be used as a substitute for a necessary contractual amendment.

Practical conclusion: before offering your franchise, prepare a reinvestment matrix and turn it into clear contractual rules. Every change should have a reason, a responsible party, a budget and a deadline.