Franchise transfers in Mexico: how to agree the terms

When franchising your business in Mexico, it is worth planning for what happens if a franchisee wants to sell their unit or bring in someone who will take control. Simply allowing or prohibiting a ‘transfer’ is not enough: you need to distinguish what is being transferred, who must approve it and how the business will continue to operate. A clear procedure protects the brand and gives everyone in your franchise network greater certainty.

1. Define what transferring the unit means

In a business discussion, ‘selling the franchise’ can mean several different transactions. The franchisee might sell the furniture and stock, assign their rights and obligations under the agreement, or sell shares in the company operating the premises. Each scenario requires a different review.

Buying the assets at the premises does not, in itself, confer permission to use the brand and operate the franchise. Nor should anyone assume that the lease, permits or business accounts will transfer with the business.

Before offering your first franchise, seek legal advice to define:

• Which transfers require prior written consent.
• How a change of control of the franchisee company will be handled, even if it remains the same legal entity.
• Which rules will apply to reorganisations involving related companies.
• Whether the incoming operator will take over the existing agreement or enter into a new one.

Avoid a clause that merely says ‘no assignment without consent’. Add the procedure for requesting consent, the documents required and the criteria for making a decision. This reduces uncertainty without giving up control over who operates under your brand.

2. Align the clause with Mexican regulation

Mexico has specific franchise regulation. Article 245 of the Federal Law on the Protection of Industrial Property (LFPPI) defines a franchise by reference to a written trade mark licence accompanied by technical knowledge or technical assistance to ensure uniform operations.

That article also requires prospective franchisees to receive information about the state of the business at least thirty days before the agreement is signed. Article 246 requires the agreement to be in writing and to contain certain minimum provisions. Transfers need their own detailed contractual provisions: they should not be treated as a matter of informal permission.

If the transfer involves entering into a new franchise agreement, build the provision of pre-contractual information and the statutory waiting period into the transaction timetable. If the proposal is simply to assign the existing agreement, obtain a legal review of the structure and its disclosure obligations; do not assume that calling it an ‘assignment’ removes all duties towards the incoming operator.

Sales materials, pre-contractual information and the agreement must be consistent. Do not promise a prospective franchisee freedom to resell the unit if the agreement then imposes restrictions that have not been explained to them.

3. Establish an approval procedure with a clear audit trail

The aim is not to repeat the entire recruitment process, but to check that the buyer can take over an operating unit and its outstanding obligations. Organise the approval process into straightforward stages.

The franchisee’s application. Ask for the buyer’s identity, the proposed transaction structure, a provisional date and a list of the assets or rights included. Also request a documented snapshot of the unit’s position: outstanding debts, stock, equipment and commitments to customers.

Assessment of the incoming operator. Define criteria relevant to running the business, such as financial capacity, availability to manage it and completion of the required training. Apply consistent criteria; an unexplained decision can lead to an avoidable dispute.

Decision and conditions. Set contractual deadlines for reviewing a complete application, requesting clarification and communicating the decision. Distinguish final approval from consent that is conditional on completing training, bringing payments up to date or obtaining the landlord’s consent.

If you intend to charge a transfer administration fee, explain what it covers, who pays it, when it becomes payable and what happens if the transaction does not complete. Do not present it as a legal requirement: it is a commercial condition that must be agreed and clearly communicated.

4. Document completion and operational continuity

Approval should not be confused with the automatic release of the outgoing franchisee from their obligations. The completion document must specify which obligations the incoming operator takes on, which remain with the outgoing franchisee and when the changes take effect.

Prepare a completion checklist covering:

• Signature of the assignment documents or the new agreement, as appropriate.
• Confirmation of the right to occupy the premises and a review of applicable permits.
• An inventory of the equipment, goods and operating materials handed over.
• Allocation of responsibility for customer advance payments, warranties and claims.
• Activation of the incoming operator’s access permissions and cancellation of the outgoing operator’s permissions.
• A review of employment obligations and the handling of personal data affected by the transaction.

Do not assume that an agreement between buyer and seller settles obligations towards employees, customers or public authorities. These matters require a separate review.

Practical conclusion: before you begin franchising, prepare a transfer clause, a set of approval documents and a completion checklist. A transfer should allow a change of operator without leaving responsibilities or continuity of service unresolved.