Franchising In Argentina – A Look At The New Franchise Law

Argentina is the second largest country in South America, with a well educated and principally urban population of over 40 million. Although it continues to suffer from economic and political instability, Argentina remains an interesting market for franchisors prepared to a take long view, given the strong regional growth in this part of the world.

Franchisors should therefore take note, as the Civil and Commercial Code ("Code") entered into force on 1 August 2015 and applies to Argentinian franchising contracts entered into on or after 1 January 2016.

Prior to this, franchise contracts were governed only by general principles of contract law. Whilst the Code only strictly applies to franchise agreements entered into after 1 January 2016, it will also regulate issues that are deemed to be a matter of "public concern" in older franchising contracts, such as a franchisor's right to terminate a franchise agreement prior to the expiry of the newly mandated minimum four (4) year initial term in the absence of breach by the franchisee.

So, what's new?

Unfortunately, the Code follows the trend set in a number of other jurisdictions around the world, which have introduced "half baked" franchise regulations, introducing a number of unhelpful ambiguities or uncertainties to the regulation of the franchisor/franchisee relationship. For example:

Ownership - the new legislation prohibits the Franchisor from having a controlling interest in the Franchisee's company, either directly or indirectly. This may mean that certain standard provisions in an international franchise agreement may not be enforceable, such as a right of first refusal to buy the Franchisee's business if it is the controlling interest that is intended to be transferred. Disclosure - prior to signing a franchise agreement, the Franchisor is required to provide to the Franchisee certain economic and financial information in relation to the Franchise Business so that the Franchisee can assess its viability and make an informed decision on the value of the opportunity being offered to them. This information must cover a minimum period of two (2) years and must be in respect of similar units as those offered to the Franchisee. This information can be about units in Argentina or abroad. It is currently unclear whether a franchise system that has been in operation for less than two years can open a franchise in Argentina due this requirement or whether it would be sufficient for the...