Franchises in Guatemala: agree terms for mandatory refurbishments

Buying a franchise means adopting a brand identity, but you should also understand how much maintaining it could cost over the term of the agreement. New décor, signage or a different premises layout may require investment not included in the initial proposal. Agreeing how these refurbishments will be managed helps protect the franchise relationship and avoid open-ended financial commitments.

1. Identify which changes you may be required to make

Before signing, look for clauses allowing the franchisor to update the brand image, alter the premises or require adaptations. Do not just review the investment section: these powers may also appear among your obligations to comply with brand standards.

Distinguish maintenance from refurbishment. Repairing a damaged wall is not the same as replacing serviceable finishes to introduce a new visual concept. If both fall under a general obligation to maintain the brand image, it will be difficult to anticipate the expenditure you are accepting.

Ask for a clear distinction between at least the following:

• Repairs and routine maintenance at your expense.
• Brand-led changes to the premises’ appearance during the term of the agreement.
• Adaptations needed to meet legal requirements applicable to the premises.
• Optional improvements you may propose as the franchisee.

Ask for details of previous changes and whether any refurbishment is already planned. This history can help you assess the offer, but it does not guarantee that future changes will be on the same scale. The key is to turn relevant answers into written commitments.

2. Agree limits and an approval procedure

A power to require any refurbishment, at any time and entirely at your expense, leaves a substantial part of your investment undefined. Propose that every refurbishment requirement be accompanied by a technical specification, a justification, a budget and a timetable.

Negotiate a notice period that gives you time to obtain quotes, organise the work and arrange finance if necessary. You could also propose an initial period without purely cosmetic changes, or a limit on how often full refurbishments can be required. These are negotiable terms, not automatic rights granted to franchisees.

To control costs, discuss options with your adviser, such as a cap for each refurbishment, a cumulative cap over a set period, or a requirement for your consent if the agreed amount is exceeded. Define which costs are included, such as design, materials, installation, removal and supervision.

Clarify how quotes will be approved and how unforeseen work or costs will be handled. An approved budget should not be confused with unlimited authorisation for additional work. Propose that any additional work be documented before it is carried out, except for expressly specified urgent measures.

It is also worth separating legally required adaptations from commercial improvements. A contractual spending cap does not allow you to disregard applicable legal obligations.

3. Calculate the impact while work is under way

The cost of a refurbishment goes beyond the contractor’s invoice. It may involve days without sales, reduced operations, moving stock, additional cleaning or product losses. Prepare an estimate that accounts separately for the work itself and the disruption to the business.

Ask who will decide whether the premises must close and what conditions must be met before reopening. If the franchisor needs to inspect the completed work, agree a timeframe for the inspection and a procedure for reporting and correcting defects.

Set out in writing:

• Whether work can be carried out in stages or outside trading hours.
• Which contractual payments will continue during closure and which, if agreed, will be reduced or suspended.
• Who will obtain the landlord’s consent and any necessary permits.
• How delays attributable to design, approvals or the work itself will be handled.

Do not assume that closing for a refurbishment required by the brand automatically suspends your payments. Nor should you assume that the franchisor’s approval replaces the property owner’s consent.

4. Build these protections into your Guatemalan agreement

Guatemala has no franchise-specific legislation or special mandatory pre-contractual disclosure regime. You should therefore not assume that there is a specific statutory limit on the refurbishments a brand can require.

The relationship is governed by the Commercial Code, Decree 2-70, and, where supplementary provisions are needed, the Civil Code, Decree-Law 106. Article 669 of the Commercial Code sets out the principles of truth as known to the parties and good faith when interpreting and performing commercial obligations. The Industrial Property Law, Decree 57-2000, is relevant to the trade mark and its licensing, but does not itself set a maximum refurbishment budget.

Ask a Guatemalan lawyer to check that the negotiated clause is consistent with any general power to amend standards. The procedure, limits and exceptions must be clear in the agreement, not merely discussed during sales negotiations.

Practical conclusion: before buying, make sure four questions are answered: what you can be required to refurbish, when, subject to what spending limit, and under what conditions you will continue trading or reopen.