For the first time, Costa Rica has a Law for the Regulation and Promotion of Franchises (File No. 23,448), establishing a specific legal framework for this business model, with significant impacts for both franchisors and franchisees.
Main Practical Implications
1. Increased Disclosure Obligations Prior to Contracting
Franchisors must provide potential franchisees with a Franchise Offering Circular (“COF,†per its Spanish acronym) at least 30 days prior to signing the franchise agreement. This document must contain comprehensive information about the business, the franchise system, investments, payments, territory, financial projections, and legal background.
Key Risk: Incomplete or inaccurate information may lead to the nullity of the contract, reimbursement of payments, and claims for damages.
2. Mandatory Contractual Standardization
The law establishes mandatory minimum content for franchise agreements, including, among others, rules regarding territory, duration, royalties, confidentiality, technical assistance, non-compete clauses, termination, and applicable law.
Impact: It will be necessary to adjust contracts and contractual models to ensure compliance with this minimum content.
3. Reinforcement of Franchisor Obligations
The franchisor assumes express duties regarding:
- Knowledge transfer.
- Initial and ongoing training.
- Technical assistance throughout the term of the contract.
- Protection and defense of intellectual property.
- Operational Implication: Franchises must have actual support and guidance structures covering at least these areas.
4. Clarity in Liability and Labor Relations
The law clarifies that there is no labor relationship or joint liability between the franchisor and the franchisee’s employees, maintaining the legal independence of the parties.
Benefit: Reduces the risk of indirect labor contingencies for the franchisor.
5. Registry of Franchising Companies
A Registry of Franchising Companies is created under the Ministry of Economy, Industry, and Commerce (“MEICâ€). It is voluntary, free of charge, and for informational purposes, with an obligation for quarterly updates.
Strategic Use: It can serve as an evidentiary element and a tool for transparency toward investors.
Entry into Force and Next Steps
The law becomes effective upon its publication, and the MEIC must issue the regulations for the registry within a three-month period.