Franchise Terms in Mexico: How Long Should Your Contract Last?

Buying a franchise gives you the right to operate for a set period, not indefinitely. An attractive brand and an affordable investment are therefore not enough: the agreed term must make sense for the money you commit. In franchising, checking this before signing helps you avoid a business that needs longer to recoup its investment than you are actually authorised to operate it.

1. Distinguish the legal requirements from the term you need

In Mexico, the Federal Law on the Protection of Industrial Property (LFPPI) specifically regulates franchises. Article 246 requires the contract to be in writing and sets out minimum content requirements, including details of investment in infrastructure, financing policies and grounds for termination.

However, the law sets neither a minimum nor a maximum term for a franchise contract. The parties must agree on its duration. Just because a brand uses the same term in all its contracts does not mean that the authorities require it or that it suits your outlet.

Nor is there any legal guarantee that you will recoup your investment during the contract term. That assessment is the buyer’s responsibility, with independent financial and legal advice.

Ask for the contract to specify:

• The date or event that brings it into effect.
• How its expiry date is calculated.
• The period during which you can actually operate under the brand.
• Whether any preliminary stages use up part of that period.

Do not confuse the initial term with a possible renewal: when deciding whether to buy, first assess the period that will actually be secured in writing.

2. Count the months of trading, not just the years in the contract

A contract may start running from the date of signature, even if the outlet is not yet generating revenue. Finding premises, fitting them out and obtaining approvals can use up part of the term.

The key question is: how much usable operating time are you buying?

Prepare a timeline with four milestones: signing, the start of expenditure, opening and expiry. Identify who will verify each date and which document will confirm it. Vague wording, such as “from the start of the project”, can lead to different interpretations.

If the term begins when the outlet opens, ask for a clear definition of how the opening will be documented and what happens if it never takes place. If it begins at signing, factor the pre-opening period into your financial assessment.

It is also worth asking how temporary closures affect the calculation of the term. Do not assume that suspending operations automatically stops the contractual clock: any adjustment must be supported by the contract or another applicable agreement.

3. Check that you can recoup your investment within the available period

Ask your accountant for a cash flow forecast covering only the initial term. The aim is not to demonstrate that the brand can be profitable, but to establish whether the agreed term is long enough for this particular investment.

Include all the expenditure needed to get started, working capital and foreseeable replacement costs. Then estimate the cash that would remain after paying operating costs, taxes and financial obligations. Do not confuse sales revenue with money recovered.

Work through several scenarios:

• Base case: opening and sales in line with documented assumptions.
• Conservative: a slower start to trading and greater cash requirements.
• Adverse: less operating time or reasonably foreseeable exceptional costs.

For each scenario, mark when you would recoup the initial outlay and how much time would remain afterwards. Recovering your money just as the contract expires leaves little room for setbacks.

Do not automatically assign a resale value to the franchise at the end of the term. Equipment may retain some value, but continuing to trade under the brand depends on contractual rights that may have expired.

4. Align the franchise term with your lease, borrowing and other commitments

The expiry of the franchise contract does not, in itself, end your obligations to your landlord, bank or other suppliers. Compile these commitments in a table showing their start dates, end dates and outstanding payments.

Look out for two mismatches in particular: a lease that ends before your right to operate, and borrowing that still requires repayments after that right has expired. Both need a solution before you sign, rather than an expectation that “it will be sorted out later”.

If the proposed term is too short, you can suggest a longer initial term, a clearly defined start date or an investment level that fits the available period. These are negotiating proposals, not automatic rights for the franchisee.

Practical conclusion: base your purchase on the secured term, not on hypothetical extra years. Before signing, insist on clear dates and check that your investment, lease and borrowing are financially sustainable within the initial term.