Franchise premises in Mexico: what to check before signing a lease

Attractive premises can become a costly commitment if you cannot run the business you intend to buy there. In franchising, commercial approval of a location is no substitute for legal and technical checks on the property. Before paying a deposit or signing a lease, make sure the premises can accommodate the business and that your commitments to the landlord and franchisor are compatible.

1. Distinguish brand approval from permits

The franchisor may approve a location because of its visibility, floor area or proximity to potential customers. That approval alone does not establish that your business activity is permitted or that the premises meet the applicable requirements.

Mexico has specific franchise legislation. Article 246 of the Federal Law for the Protection of Industrial Property (LFPPI) requires the franchise agreement to be in writing and to include, among other things, the location, minimum dimensions and details of investment in the outlet’s infrastructure.

Ask for the premises requirements to be documented, including usable floor area, building services, equipment, branding and the capacity needed to operate. A sales presentation or approval message is no substitute for these specifications.

Article 245 also requires the franchisor to provide information on the state of its business at least thirty days before the franchise agreement is signed. This does not create an automatic cooling-off period for a lease, nor does it oblige the landlord to refund advance payments. Coordinate the two processes without assuming that one protects you in the other.

2. Verify the property’s suitability with evidence

Opening requirements vary by state, municipality or Mexico City borough, and by business activity. Before committing, arrange a local review with legal and technical support.

Check the following, as applicable:

• Land use: whether the specific activity is compatible with the authorised use, rather than simply relying on the property being advertised as commercial premises.
• Operating requirements: which licence, notification or authorisation the business needs and who must arrange it.
• Civil protection: evacuation arrangements, building services, occupancy limits and safety obligations applicable to the business.
• Special requirements: health permits, alcohol sales, signage, fume extraction or waste management, where relevant.
• Private restrictions: rules for the jointly owned building or shopping centre, opening hours, loading and unloading, noise and permitted alterations.

Do not assume that the previous occupier’s permits will cover your business. They may relate to a different holder, activity or layout; check whether they need updating or whether a new application is required.

Also confirm that the person offering the property has authority to let it. For a sublease, check that subletting is permitted and that the term covers your needs. Keep documents and written records of enquiries: an agent’s assurances are not enough to establish suitability.

3. Budget for the fit-out before agreeing to the rent

Two properties with the same rent may require very different levels of investment. Your budget should be based on a technical site visit and the franchise’s requirements, not just an estimate per square metre.

Obtain itemised quotations for any necessary building work, electrical installation, water supply, drainage, ventilation, accessibility improvements and safety measures. Include design work, permit and application costs, deposits and maintenance charges specified in the lease.

Establish who will pay for repairs to existing defects and for improvements. For example, insufficient electrical capacity may require both work inside the premises and arrangements with external providers; do not assume that installing the equipment will resolve everything.

Ask the franchisor whether the proposed design needs approval and how long the review takes. Obtain the landlord’s written consent for works, signage and equipment. Approval from one party does not bind the other.

Finally, calculate the cost of the period before sales begin: rent, maintenance and other commitments from handover to opening. If you negotiate a rent-free or grace period, clarify when it starts, which charges it covers and what happens if the fit-out is delayed.

4. Align the lease with the franchise agreement

The lease must be reviewed against the civil law applicable in the relevant Mexican state and its agreed terms. It will not necessarily have the same duration or conditions as the franchise agreement.

Before signing, ask your lawyer to compare the two documents. Pay particular attention to:

• The property handover date, rent commencement date and required opening date.
• Contract terms and renewal arrangements.
• The authorised use of the premises and permitted works.
• The consequences of failing to obtain essential permits.
• What happens to improvements and any obligations to reinstate the premises at the end of the lease.

Where feasible, negotiate conditions that make the final commitment subject to technical and commercial approval and confirmation that the necessary permits can be obtained. Define deadlines, the evidence required and deposit refund terms; calling a payment a ‘holding deposit’ does not automatically make it refundable.

In practice: do not lease premises simply because the brand approves the address. Proceed once you have written technical requirements, documented evidence of suitability, a fit-out budget and compatible contracts.