MEXICO Law and Practice Contributed by: Gustavo A. Alcocer, Luis Astorga, Isabella Montero Torres and Fernanda Martínez Zolezzi, OLIVARES
are therefore matters for the parties to establish in the franchise agreement. Mexican law does not require the franchisor to com - pensate the franchisee merely because a fixed-term franchise agreement expires without renewal. This should be distinguished from an early termination dur - ing the agreed term, which is subject to the restric - tions described in 5.3 Termination of the Franchise Agreement . If the agreement grants the franchisee a renewal option or requires the franchisor to renew once specified conditions are satisfied, a refusal to honour that commitment may constitute a breach of contract and give rise to contractual remedies. Mexico does not have a general federal commercial agency statute providing an automatic customer-base or goodwill indemnity upon expiry or non-renewal. Any compensation would therefore require a contractual commitment, a breach of contract or another legal basis applicable to the particular circumstances. 5.3 Termination of the Franchise Agreement The franchisor does not have an unrestricted right to terminate a Mexican franchise agreement before its agreed expiry date. The LFPPI applies the same rule to both parties: neither the franchisor nor the fran - chisee may unilaterally terminate or rescind the agree - ment unless it was entered into for an indefinite term or there is just cause for doing so. Any early termina - tion or rescission must also follow the grounds and procedures established in the franchise agreement. The restriction therefore protects the franchisee as well as the franchisor. A franchisee may invoke just cause and the contractual termination mechanisms agreed by the parties, subject to the applicable contractual procedures. Because the LFPPI does not provide an exhaustive definition of just cause, the franchisor should ensure that material defaults, cure periods, notices and the termination procedure are drafted with sufficient clarity to comply with the statutory framework. A termination made contrary to these requirements may give rise to the contractual penalties agreed by the parties or, instead, damages caused by the improper termination.
The franchisee also has a separate statutory remedy if the mandatory pre-contractual information provided by the franchisor was untruthful. In that case, the fran - chisee may seek nullity of the agreement and claim damages. The damages claim must be brought within one year after execution of the agreement; after that period, the franchisee retains the right to seek nullity. Although nullity is legally distinct from contractual ter - mination, it provides the franchisee with an additional statutory means of challenging and bringing the rela - tionship to an end. 6. Restrictions on Competition in Franchise Agreements 6.1 Treatment of Competition Restrictions in Franchise Agreements Under Mexican competition law, restrictions con - tained in franchise agreements are not prohibited per se. However, a vertical restriction may constitute a “relative monopolistic practice” where it: • falls within any of the cases set forth in Article 56 of the LFCE; • is implemented by any individual or entity – either for profit or non-profit – or by any federal, state or municipal public administration agency or entity, association, business chamber, professional asso - ciation, trust or any other form of participation in economic activity (“economic agent”) with sub - stantial market power in the relevant market; and • has or may have the purpose or effect of improper - ly displacing other economic agents, substantially preventing their access to the market, granting exclusive advantages or improperly limiting their ability to compete. Even where these three elements are satisfied, the LFCE applies a rule-of-reason analysis: the conduct will not be unlawful if the economic agent demon - strates that it generates efficiency gains that have a favourable impact on competition and free concur - rence, outweigh its potential anticompetitive effects and result in an improvement in consumer welfare. In practice, restrictions inherent to a franchise system, such as the protection of brand identity, quality control
34 FRANCHISING 2026
C HAMBERS.COM
Powered by FlippingBook