Franchise terms and renewals in Mexico: how to agree them

When turning your business into a franchise, you need to decide how long the relationship will last and what will happen when that period ends. Copying another brand’s contract term can leave investments unrecovered, leases out of step or expectations of continuity that no one has agreed to. To build a stable franchise network, it is worth defining the term and renewal arrangements before presenting the contract to your first prospective franchisee.

1. Distinguish the contract term from the right to renew

In Mexico, the Federal Law on the Protection of Industrial Property (LFPPI) specifically regulates franchises. Article 245 sets out the features that define this relationship, while Article 246 requires a written contract and specifies its minimum content. The law does not set a minimum or maximum term for franchise agreements.

This allows you to agree a term that suits the business, but precision is essential. Define the event that starts the term: signing, opening or an expressly stated date. If you choose opening, specify how it will be documented and what happens if it is delayed; otherwise, the expiry date could remain uncertain.

The contract term and renewal are not the same thing. The former determines how long the initial contract lasts. The latter governs whether there can be a further period and on what conditions. Do not assume that good performance alone creates a right to renew.

Also distinguish between extending the existing contract and entering into a new one. Ask your legal adviser to reflect your chosen approach in consistent clauses, rather than using the two terms interchangeably.

2. Choose a term that fits the operation

The term should not depend solely on the initial franchise fee. Review the obligations the franchisee will take on and the commitments needed to keep the outlet running.

Before setting the term, prepare a table covering these points:

• Initial investment: fit-out, equipment and other expenditure specific to the franchise format.
• Lease: the term of the premises lease and realistic options for extending it.
• Equipment lifespan: when replacement or major maintenance is likely to be needed.
• Start-up period: the time needed to stabilise operations, without promising results.
• Support capacity: the commitments your organisation can sustain throughout the relationship.

Use this review to identify mismatches. For example, a franchise agreement that runs beyond the lease term needs to address what will happen if the premises are no longer available. The right to operate the franchise does not guarantee that the landlord will allow the business to remain there.

The time needed to recover the investment can inform negotiations, but must not be presented as a guarantee of profitability. Nor does a longer term compensate for a weak operating model. The aim is to offer a viable relationship, not to justify a sale through expectations the contract cannot guarantee.

3. Make renewal a verifiable process

Avoid wording such as ‘the agreement will be renewed if both parties are satisfied’. It does not explain what will be reviewed, when the decision will be made or which documents must be submitted.

Design a process that answers at least these questions:

• Who must request renewal, and by what means?
• How far in advance must they do so?
• How long will the other party have to respond?
• Which requirements must be met, and how will compliance be demonstrated?
• What happens if there is no response?

Requirements may include being up to date with payments, continued availability of the premises and compliance with clearly identifiable operating standards. If outstanding issues need to be resolved, specify how they will be communicated and what opportunity there will be to address them.

Also clarify the length of the next term, whether a renewal fee will apply and how it will be calculated. If refurbishment or equipment replacement will be required, describe the scope or the process for defining it in advance. Do not turn renewal into a blanket right to impose unspecified investment requirements.

If the intention is to sign a new contract, ask for a review of the applicable pre-contractual obligations, including any information that must be provided before it is signed. Do not assume that the existing relationship removes those obligations.

4. Prepare a timetable before signing

The clause is of little use if no one monitors its deadlines. Make someone responsible for the contract timetable and retain records of requests, responses and agreements.

Create a record for each outlet showing the start date, expiry date, deadline for requesting renewal and milestones for reviewing the premises and equipment. Schedule internal reminders ahead of each relevant date.

Check that the commercial proposal and the contract describe the same prospects for continuing the relationship. If renewal is conditional, avoid advertising an indefinite relationship or guaranteed renewal.

Practical takeaway: before offering your first franchise, define the term, the event that starts it and a renewal process with clear dates, requirements and costs. That predictability helps both parties plan for continuity.