Franchises in Guatemala: agree what happens if you have to close

A temporary closure can stop sales without stopping expenses. Before buying a franchise in Guatemala, check what would happen if a fire, flood or access restriction prevented you from operating the premises. Planning for these situations helps franchisors and franchisees allocate responsibilities clearly and protect business continuity, rather than relying on improvised agreements once an emergency has already arisen.

1. Distinguish an emergency from a breach on your part

It is not enough for the contract to mention ‘force majeure’. It is worth defining which situations may justify a temporary suspension, how they will be substantiated and which obligations would be affected. An extraordinary event does not necessarily have the same effect on every obligation under the contract.

For example, being unable to serve customers does not automatically mean that you are also unable to submit a report or pay an existing debt. Nor should a closure caused by external damage be treated in the same way as a shutdown resulting from expired permits for which the franchisee is responsible.

Ask for the contract to distinguish at least between:

• Inability to operate: the premises cannot open or be used safely.
• Restricted operations: sales are possible, but opening hours, access or services are restricted.
• Financial difficulty: sales fall, although the business can continue operating.
• Breach attributable to one party: an act or omission by the franchisee or franchisor causes the interruption.

These categories are points for negotiation, not automatic legal exemptions. A lawyer should check how they fit with Guatemalan law and the specific obligations undertaken.

2. Understand what Guatemalan law covers and what you need to agree

Guatemala has no specific franchise law. A franchise agreement is treated as an atypical commercial contract: the relationship is structured through the parties’ agreements, within the limits of applicable law.

The general legal framework includes the Commercial Code, Decree 2-70, and the Civil Code, Decree-Law 106, which govern contractual matters and obligations. The Industrial Property Law, Decree 57-2000, is relevant to the trade mark and other protected elements of the franchise system. The absence of a dedicated law does not place the relationship outside the law or make every clause valid.

There is also no specific pre-contractual franchise disclosure regime requiring an offering circular to be provided within a mandatory timeframe. For this reason, request the wording of the provisions on business interruptions and any related policies before committing.

Do not assume that an emergency waives royalties, extends the contract term or gives you an automatic right to suspend payments. Seek local legal advice to distinguish between effects that may arise under general legal rules and those that require an express agreement. Obligations towards your landlord, employees, banks or public authorities need a separate review: the franchise agreement does not, by itself, alter them.

3. Calculate the costs that would continue during closure

Prepare a list of every payment that would fall due during the interruption. Include fixed fees, contractual minimums, technology platforms and services that remain active. Do not confuse a royalty calculated on sales with a minimum charge that may still apply even when there is no turnover.

For each item, put three questions in writing: will it be suspended, reduced or accrued? From what date? What documentation triggers that treatment?

Deferral is not a waiver. If amounts accrue, calculate how they will be paid after reopening and whether interest will apply. Reopening may require new stock and repairs just as deferred charges start falling due.

Also review insurance with a broker or insurer. Property damage cover should not be confused with business interruption cover. Ask for confirmation of the risks covered, exclusions, excesses, waiting periods and claims conditions. Do not assume that the franchisor’s policy protects your premises or income.

4. Plan notification and reopening procedures in advance

Negotiate a procedure that can realistically be followed during an emergency. It should specify who receives the notification, through which channel, what initial information is required and when the available evidence must be supplied, without delaying urgent safety measures.

Also agree who will assess whether the premises are ready to reopen and which criteria they will use. Commercial approval from the franchisor does not replace any required approvals from public authorities. If an alternative is available, such as partial operation, define who authorises it and who bears its costs.

Finally, provide for regular reviews of the situation and set a date for deciding what to do if the interruption continues. Avoid leaving either accrued payments or the obligation to retain an inactive outlet unresolved indefinitely.

Practical takeaway: before signing, work through a closure scenario with no sales and write down what you would have to pay, what you would need to communicate and what you would need in order to reopen. Take any gaps you identify into the negotiations and legal review.