Mexico – Changes in Franchising Law

Effective January 26, 2006, changes were made to Article 142 of the Mexican Industrial Property Law (MIPL) governing franchising activities in Mexico. The new Mexican franchising law was enacted to more explicitly set forth the requirements for franchising activity in Mexico and, at the same time, afford minimum protection to local franchisees.

Previously, franchisors were required to disclose to franchisees relevant information regarding the proposed franchise immediately prior to execution of the agreement. Article 142 modifies this requirement by requiring the franchisor to disclose such information at least 30 days prior to execution. Specifics of the information to be disclosed to the franchisee are itemized under Article 65 of the MIPL. If any information provided to the franchisee later turns out to be false, the franchisee may be able to terminate the agreement and seek consequential damages, provided such termination occurs within one year of execution.

Article 142 Bis provides that the franchisee is under no obligation to sell its assets or shares to the franchisor unless otherwise agreed to by the parties. Article 142 Bis 3 precludes unilateral termination of the agreement by either party without cause. Termination without cause entitles the injured party to contractual penalties or damages.

Article 142 Bis 1 provides the franchisor with the right to participate in the operations of the franchisee’s business in order to guarantee compliance with administrative and franchise image standards. This provision is limited in that the franchisor may not participate in decisions regarding merger, spin-off, corporate transformation, or grant of liens in the interests or shares of the franchisee. Article 142 Bis 2 requires a franchisee to maintain confidentiality over all the information owned and provided by the franchisor.

Franchise Agreements must be recorded before the Mexican Institute of Industrial Property (IMPI).