Franchising in Guatemala: negotiate your territorial exclusivity

Buying a franchise does not mean you will be the only operator authorised to use the brand near your premises. In Guatemala’s franchise market, territorial protection must be negotiated and set out precisely in writing. Before assessing a location or paying for a supposedly exclusive territory, check what the agreement actually protects, against whom and for how long.

1. Distinguish the trade mark licence from territorial protection

Guatemala has no specific franchise law and does not require a pre-contract disclosure document or franchise registration under a dedicated franchise regime. That does not mean the agreement falls outside the law: the Commercial Code, Decree 2-70, applies, with the Civil Code, Decree-Law 106, providing supplementary rules, while the Industrial Property Law, Decree 57-2000, governs the relevant industrial property matters.

The Industrial Property Law sets out rules for trade mark licences that also apply to franchise agreements. These include the principle that a licence is non-exclusive unless otherwise agreed. Do not confuse that exclusivity with a comprehensive ban on competition within an area: the agreement must address both points clearly.

Permission to use the brand in a municipality may restrict where you can operate without preventing the franchisor from opening another outlet there. Similarly, a promise not to grant new franchises could still leave room for sales through company-owned outlets.

Ask a Guatemalan lawyer to review the scope of the clause and its compatibility with applicable law. Do not infer territorial rights from a sales presentation or phrases such as ‘allocated area’.

2. Define the area and the operations covered

A useful clause lets you answer a specific question: does a particular operation fall within or outside the protection? To achieve this, include a signed appendix containing a map and a verifiable description of the boundaries.

Avoid ambiguous references such as ‘the vicinity of the premises’ or ‘catchment area’. If you use a radius, define the point from which it is measured and whether the distance is measured in a straight line or by road. If you use municipal boundaries or streets, agree what happens if administrative boundaries or street names change.

Review at least the following:

• Who is bound: the franchisor and, through commitments it can make and enforce, the brand operations it controls or authorises.
• Which formats are covered: full-sized outlets, kiosks, mobile units, pop-ups and other formats operating under the same brand.
• What exceptions apply: reserved locations or customers, expressly identified.
• When protection begins: on signing, approval of the premises or opening, as agreed.

Also request a written list of existing outlets and openings already committed to that affect the area. An unidentified exception can significantly reduce the value of exclusivity.

3. Clarify how online sales and deliveries work

A protected territory for physical outlets does not necessarily give you exclusive rights to online purchases. It is therefore worth distinguishing between the location of the sales outlet, the customer’s address and the delivery address.

Consider practical scenarios: a customer in your area buys through the brand’s central website; another outlet delivers an order a few streets from your premises; a business with several sites contracts directly with the franchisor. Who fulfils the order, issues the invoice and receives the revenue in each case?

Negotiate rules for allocating orders, delivery coverage, campaigns targeting customers in the area and servicing national accounts. If compensation is payable for central sales, specify how it is calculated, settled and verified.

Do not assume that every sale to a resident of your territory belongs to you. That scope must be agreed. Nor should you confuse territorial exclusivity with guaranteed demand: it neither removes competition from other brands nor guarantees profitability.

4. Safeguard ongoing protection and agree how breaches will be handled

Check whether the franchisor can unilaterally reduce the area, introduce exceptions or replace the map. Protection that can disappear without clear criteria is difficult to value when buying a franchise.

If retaining it depends on meeting conditions, insist that these are objective and verifiable, with written notice and an opportunity to remedy breaches where appropriate. Also clarify whether exclusivity continues on renewal or must be renegotiated.

Finally, agree how to report territorial encroachment, what evidence to provide and how quickly the franchisor must respond. The agreement may provide for corrective measures and financial consequences, subject to legal review; do not assume compensation will be automatic.

Practical conclusion: before signing, bring together three consistent elements: a map, a list of exceptions and rules for online sales. If these do not allow you to explain what is protected, there is still more to negotiate.