Costa Rica’s New Franchise Law: Necessary Regulation or Overregulation of the Model?
The recent publication, on March 12th, 2026, in La Gaceta of Law No. 10867, “Law for the Regulation and Promotion of Franchises,” marks a milestone in Costa Rican commercial law. For the first time, the country has a specific legal framework governing a business model that, until now, operated under fragmented rules derived from civil, commercial, competition, and intellectual property law.
The approval of the Costa Rica Franchise Law by the Legislative Assembly of Costa Rica not only introduces a formal regulation of the franchise agreement, but also redefines the legal dynamics between franchisor and franchisee, significantly raising standards of compliance and transparency.
The key question, however, is not merely what the law regulates, but rather how it will effectively impact the practical operation of the franchise model in Costa Rica.
From Fragmented Regulation to Contractual Typification
One of the most significant contributions of the law is the legal definition of the franchise agreement, understood as an arrangement whereby the franchisor grants the right to exploit a proven, replicable, and transferable business system, associated with intellectual property rights, know-how, and technical assistance, in exchange for financial consideration.
This typification is far from trivial. Until now, franchising was primarily a doctrinal and contractual construct, which often generated uncertainty, particularly in disputes concerning the nature of the relationship or the scope of the parties’ obligations.
With this law, the legislator adopts an approach closer to comparative law, whereby franchising ceases to be an atypical contract and instead becomes a legal figure with clearly defined essential elements.
The Franchise Disclosure Document: The Cornerstone of the New System
The most disruptive change undoubtedly lies in the regulation of the pre-contractual phase.
The obligation to provide a Franchise Disclosure Document (FDD) at least 30 days prior to execution introduces, in practice, a robust pre-contractual liability regime, one that has historically been underdeveloped in Costa Rican commercial law.
This obligation goes beyond mere disclosure. It requires information to be truthful, clear, verifiable, and properly substantiated. This includes everything from operational data of the franchise network to financial projections.
From a legal standpoint, this is particularly relevant for two reasons:
- It shifts the risk to the pre-contractual stage. Non-compliance is no longer limited to contractual performance, but may arise even prior to execution.
- It reinforces nullity as a protective mechanism. The law allows the franchisee to seek nullification of the agreement and claim damages in the event of inaccurate or incomplete information.
In my view, while this regulation enhances transparency, it also introduces a significant evidentiary burden for franchisors, who must be able to prove not only the delivery of the information, but also its accuracy and technical support.
As a result, we are likely to see a shift toward more formalized processes, including:
- document traceability
- acknowledgment of receipt mechanisms
- version control
- internal validation of financial information
Contractual Standardization: Between Legal Certainty and Rigidity
The law establishes mandatory minimum content for franchise agreements, covering key aspects such as territory, exclusivity, royalties, technical assistance, confidentiality, termination, and dispute resolution.
Additionally, it introduces specific limitations on traditionally sensitive clauses:
- Non-compete clauses may not exceed a term of five years.
- Post-contractual restrictions may not exceed one year, except where necessary to protect non-public know-how.
- Clauses that restrict passive sales within exclusive territories are prohibited, meaning sales made without actively soliciting the customer, where the customer initiates the transaction.
From a commercial law perspective, this reflects a clear objective: reducing asymmetries and preventing abusive contractual practices.
However, it also raises an important tension. Franchising is inherently a highly flexible model, whose efficiency lies precisely in its ability to adapt to different markets, industries, and operational structures.
Excessive standardization may, in certain cases, undermine that flexibility.
In my view, the real challenge will not be merely complying with the minimum content requirements, but rather maintaining efficient contractual structures without falling into rigidities that may affect the competitiveness of the franchise system.
Liability and Independence: A Necessary but Not Absolute Clarification
The law reaffirms a key principle: the legal independence of the franchisor and the franchisee. Each party is responsible for its own commercial, tax, and labor obligations, expressly excluding any hierarchical relationship or joint liability.
This is particularly relevant in labor matters, where there have historically been attempts to extend liability to franchisors.
However, this provision must be interpreted with caution.
In practice, many franchise systems involve significant levels of operational control, supervision, and standardization. If such control exceeds certain thresholds, it could open the door, at least in judicial proceedings, to alternative interpretations.
In other words, the independence declared by the law does not entirely eliminate the risks arising from the operational reality of the model.
For readers interested in broader commercial and regulatory developments, GLC Legal also shares related insights through its Commercial Law content and articles such as Smart Contracts in Costa Rica Law.
Franchisor Registry: More Strategic Than Mandatory
The creation of a franchisor registry before the Ministry of Economy, Industry and Commerce of Costa Rica, on a voluntary basis, responds more to a transparency rationale than to regulatory control.
Although it is not a requirement to operate, its practical usefulness may be significant in:
- due diligence processes
- investor relations
- access to financing
- international expansion
In that sense, it is foreseeable that the market, rather than the law, will ultimately turn it into a de facto standard.
A Paradigm Shift: More Than Regulation, a New Standard
Beyond its specific provisions, this law introduces a fundamental shift: it moves the franchise model toward a framework of greater formality, traceability, and corporate accountability.
This has clear implications:
- It increases compliance costs.
- It requires more robust operational structures.
- It raises the level of professionalization within the system.
At the same time, however, it strengthens confidence in the model, particularly for investors and SMEs seeking to expand under more secure and predictable conditions.
Final Remarks
Law No. 10867 arrives at a timely moment for the Costa Rican market. The growth of franchising in recent years made it evident that a clearer legal framework was necessary.
However, as with any regulation, its success will depend less on its content and more on its practical application and the interpretation adopted by legal practitioners and courts.
In my view, the true value of this law lies not only in what it regulates, but in what it demands: a cultural shift in how franchise relationships are structured, documented, and executed in Costa Rica.
Companies that understand this from the outset will not only ensure compliance, but will also be better positioned to compete in an increasingly sophisticated market.
Author: Lic. Diego Elizondo
If you would like to learn more about this topic, as well as other corporate matters, please email diego@glcabogados.com or visit the GLC Legal contact page.
