Franchising in Guatemala: negotiate your contract renewal

When buying a franchise in Guatemala, knowing how many years the contract lasts is not enough. You also need to understand what happens if the business succeeds and you want to continue. A lasting franchise relationship needs clear rules: when to apply for renewal, which requirements to meet and which financial terms could change. Negotiating these before investing reduces uncertainty as the expiry date approaches.

1. Distinguish a right to renew from a possibility of renewal

Guatemala has no specific law comprehensively governing franchising, nor a special mandatory pre-contractual disclosure regime. The relationship rests primarily on the Commercial Code, Decree 2-70, and the Civil Code, Decree-Law 106. The Industrial Property Law, Decree 57-2000, governs matters such as trade marks and licences to use them.

This framework should not be interpreted as guaranteeing franchisees automatic renewal. Ask a local lawyer to establish what right the proposed clause actually grants and what its limits are.

These formulations have different practical implications:

• Renewal by mutual agreement: requires both parties to reach a new agreement; it does not, on its own, guarantee that the relationship will continue.
• An option to renew subject to requirements: may offer greater predictability if it sets out verifiable conditions and explains how to exercise the option.
• Automatic renewal unless notice is given: requires you to check who can prevent renewal, how notice must be given and within what timeframe.

If the contract merely says it “may be renewed”, ask for more precise wording. It should state who decides, how long the next term will last and which procedure applies. A sales promise that you can continue is no substitute for a well-drafted clause.

2. Make renewal requirements verifiable

It is reasonable for the franchisor to check compliance with the contract before continuing. The risk arises when renewal depends on vague criteria, such as undefined “satisfactory performance”.

Ask for a list of conditions and the evidence needed to verify that they have been met. For example, if all payments must be up to date, agree how the outstanding balance will be reconciled and how amounts disputed in good faith will be treated. If compliance with operating standards is required, identify which standards will be assessed and how the results will be communicated.

Also negotiate a procedure for remedying breaches that can be put right before a decision is made on your application. Do not treat this as a remedy period granted by franchise-specific legislation: it needs to be agreed in the contract, subject to the applicable general law.

The timetable should establish:

• When you can submit your application and the deadline for doing so.
• Which documents you must provide and how to submit them.
• When the franchisor must respond.
• How any issues will be communicated and how you will demonstrate that they have been resolved.

Do not assume that silence means approval. Take legal advice on defining its effect and keep a record of every communication.

3. Calculate the true cost of continuing

The renewal fee is only one part of the decision. Before buying, ask whether continuing means retaining the existing contract, amending it or signing the franchisor’s standard agreement in use at that time.

An obligation to accept an unknown future contract can leave important matters open: royalties, technology charges, the contract term or new obligations. Ask for the terms that may change to be identified and, where possible, for a formula or limit governing those changes.

Prepare a comparison between the initial term and the next one. Include the renewal fee, recurring payments, documentation costs and any investment required specifically for renewal. If an amount cannot yet be determined, ask how it will be calculated and how far in advance you will be notified.

Assess your initial investment against the term you have actually secured, not against renewals that still depend on further negotiation. Then assess continuation as a separate decision: does the new term justify the expenditure required? Avoid accepting unfavourable terms simply because you have already invested in the business.

4. Document the renewal before the contract expires

Informal acceptance can leave uncertainty over the term, payments or the scope of permission to use the trade mark. Aim to formalise renewal before the current contract ends.

The document should identify the contract being continued, the clauses being changed, and the start and expiry dates of the new term. Also check that the trade mark licence permits its use throughout the renewed term.

If negotiations are still ongoing as expiry approaches, do not assume that you can keep operating on the same terms. Seek advice on whether a written extension would be appropriate, specifying its duration, payments and permissions, and clearly distinguishing it from a final renewal agreement.

Practical takeaway: before buying, insist on documented answers to four questions: who decides on renewal, what requirements must you meet, how much could it cost and when will it be formalised?