Costa Rica’s Legislative Assembly has approved the Law for the Regulation and Promotion of Franchises (Legislative Decree No. 10,867), introducing for the first time a specific legal framework for franchise operations in Costa Rica. The law sets out rules on pre-contractual disclosure, minimum franchise agreement contents, the parties’ rights and obligations, and allocation of liability within franchise systems.

I. Key takeaways.

• Mandatory pre-contractual disclosure. Franchisors must provide prospective franchisees, at least 30 calendar days before execution, with a franchise offering circular containing information that is truthful, clear, concise, objective, and verifiable.

• Minimum agreement requirements. Franchise agreements must be in writing and include a broad set of required terms.

• Remedies for inaccurate disclosure. If the information provided is not truthful, the franchisee may seek nullity of the agreement, reimbursement of fees and royalties, and damages.

• Separate liability. Franchisor and franchisee are each individually and independently liable for their commercial, tax, and labor obligations.

II. Main features of the new law.

A. A dedicated statute for a previously fragmented area.

The law’s stated purpose is to regulate and promote the franchise business model and to establish essential contractual principles and conditions aimed at providing legal certainty to all participants in franchise systems. Its stated policy goals include encouraging entrepreneurship, promoting SME growth, expanding franchising in Costa Rica, and creating new sources of employment.

B. Pre-contractual disclosure: a major shift.

One of the law’s central features is the requirement to provide a franchise offering circular before signing. The franchisor must deliver the required information at least 30 calendar days before the franchise agreement is executed. The circular must include detailed information on the franchisor’s identity, trademark rights, business experience, characteristics of the franchise system, network footprint, territory, assistance, initial investment, recurring payments, supplier arrangements, financing, renewal and termination policies, litigation history, bankruptcy history, and other material items.

This substantially raises the standard of pre-contractual transparency and will require franchisors to formalize disclosure materials more carefully.

C. Franchise agreement: heightened formal requirements.

The law requires franchise agreements to be in writing and to include, at a minimum, terms addressing the parties’ identification, system description, territory, infrastructure investment, confidentiality policies, intellectual property, rights and obligations, inventory and marketing rules, financing, technical assistance, supervision, duration, termination grounds, renewal, sanctions, dispute resolution, reinvestment, and non-compete provisions.

As a practical matter, businesses using existing franchise templates should review them against the new statutory checklist.

D. Express remedies for inaccurate or misleading disclosure.

The statute creates a specific remedy where the information supplied by the franchisor is not truthful. In that case, the franchisee may seek nullity of the agreement, reimbursement of amounts paid as franchise fees and royalties, and damages.

From a risk-management perspective, this materially increases legal exposure associated with offering materials, earnings projections, and other pre-contractual statements that are not properly substantiated.

E. Core obligations of franchisors and franchisees.

The law requires franchisors to have proven experience in the relevant sector and, once the agreement is signed, to transfer commercial and technical know-how, provide pre-opening support, offer ongoing assistance, maintain the relevant trademark registration, and protect the intellectual property rights licensed under the system.

Franchisees, in turn, must bear start-up costs, operate the business in accordance with the operations manual and technical instructions, preserve confidentiality, comply with agreed financial obligations, and observe all applicable laws and regulations, including labor, tax, health, environmental, and social security rules. The law also expressly states that personnel needed to operate the franchise are hired by the franchisee, who remains the employer of record.

F. Liability remains separate.

A particularly important provision states that franchisor and franchisee shall be individually and independently liable for their commercial, tax, and labor obligations, and that no passive or secondary joint liability may be inferred between them. The law also states that no hierarchical relationship exists between the franchisor and the franchisee’s employees.

This is significant for risk allocation and for resisting attempts to extend liability between the parties solely because of the franchise structure.

G. Practical comment.

Businesses currently franchising or planning to franchise in Costa Rica should begin to:

• review and update their offering circulars;

• align their franchise agreements with the statute’s minimum content requirements;

• formalize procedures to evidence delivery and receipt of pre-contractual disclosures; and

• reassess compliance protocols, especially in relation to intellectual property, operational support, and disclosure of financial projections.

For prospective franchisees, the new law strengthens the due diligence phase and provides a more robust legal basis to challenge inaccurate or misleading pre-contractual disclosures.

For more information please contact Carlos J. Oreamuno (coreamuno@fayca.com).