Franchise territory in Mexico: what to check before signing

Well-located premises can become less attractive if another outlet of the same brand opens nearby or digital orders are allocated to another operator. Before joining a franchise network in Mexico, check exactly what territory you will receive and what protection comes with it. A sales promise is not enough: you need verifiable boundaries and rules you can assess against your budget.

1. Distinguish territory from exclusivity

The territory is the area in which you can carry out the activities specified in the agreement. Exclusivity, by contrast, is contractual protection against certain operations by the same brand within that area. Having a defined territory does not, in itself, mean you have exclusivity.

Mexico has specific legislation governing franchises. Article 246 of the Federal Law for the Protection of Industrial Property (Ley Federal de Protección a la Propiedad Industrial, or LFPPI) requires the agreement to be in writing and to specify, among other things, the geographical area in which the franchisee will operate. This does not mean the law automatically grants exclusivity.

Article 245 requires the franchisor to provide information about the state of its business at least thirty days before the agreement is signed. This information is usually presented in the franchise disclosure document, known in Mexico as the Circular de Oferta de Franquicia, or COF. Use that period to compare the territory description you have received with the agreement and its annexes.

Ask for written answers to three questions:

• Does the protection prevent both company-owned and franchised outlets from opening?
• Does it cover all of the brand’s formats, or only outlets similar to yours?
• Does it last for the full term of the agreement, or does it depend on additional conditions?

If the sales presentation promises an “exclusive territory” but the agreement only authorises operations at a particular address, ask for that discrepancy to be resolved before signing.

2. Turn the promised area into a verifiable map

Expressions such as “central district”, “catchment area” or “the area surrounding the premises” can be interpreted in different ways. Request a territorial annex with identifiable boundaries: streets, coordinates, mapped boundary lines or postcodes, as appropriate for the location.

If a radius is used, clarify the point from which it is measured and whether it refers to straight-line distance or distance by road. Where there is both a written description and a map, establish which will take precedence if discrepancies arise.

Before accepting the territory, assess it against commercial realities:

• Identify existing outlets and ask about openings that have already been authorised or committed to.
• Locate offices, housing, shopping centres and physical barriers that affect access.
• Check whether hospitals, airports, supermarkets or other sites are excluded.
• Ask what happens if you need to relocate because the building closes or your lease ends.

An exception does not necessarily make the purchase unattractive. What matters is knowing about it and assessing its impact. For example, an outlet inside a supermarket may compete for the same customers even if it uses a different format.

Do not confuse contractual protection with sufficient demand: even a large territory may have few customers within easy reach.

3. Clarify who fulfils digital orders and receives the revenue

Physical boundaries do not automatically resolve how sales through apps, e-commerce, contact centres or corporate accounts are handled. Ask how orders are allocated when the customer, delivery address and outlet preparing the product are in different territories.

Put forward specific scenarios during negotiations: a customer in your territory buys through the central website; another outlet appears first on a delivery app; a company arranges deliveries to several branches. Ask for the applicable rules to be set out in the agreement or an annex.

Pay particular attention to:

• Allocation: who receives the order and on what basis.
• Revenue and costs: who issues the invoice, collects payment and bears the cost of discounts, commissions or refunds.
• Promotions: whether you must participate and who funds them.
• Changes: what procedure allows these rules to be amended.

Then prepare two cash flow forecasts: one including the digital sales you could reasonably expect to receive, and another without them. If your ability to pay rent, wages and financing costs depends on orders that no one guarantees, the investment plan needs adjusting.

4. Negotiate conditions and remedies for breaches

Some territorial protections depend on minimum sales, additional outlet openings or operational performance measures. Check how these are calculated, when they are reviewed and what evidence is used. Where appropriate, negotiate notice requirements and opportunities to remedy breaches before you lose exclusivity.

It should also be clear what happens if the franchisor authorises an operation that breaches the agreement: how you must notify them, what response deadline applies and what contractual mechanisms are available to resolve the dispute. A lawyer experienced in franchising should review these provisions and their compatibility with the other clauses.

Practical conclusion: before signing, make sure you have an agreed map, a record of territorial exceptions and rules for digital sales. If any of these elements changes your expected revenue, reassess the investment before committing your money.