The franchise contract: setting up a business under another brand

A franchise is the commercial activity by which one company (franchisor) grants another (franchisee) the right to exploit its own system for marketing products or services (art. 62.1 of Ley 7/1996, the Spanish Retail Trade Regulation Act). RD 201/2010 specifies the 3 defining elements: use of a trademark and uniform presentation of the premises, transmission of a proprietary, substantial and unique know-how, and continuous commercial or technical assistance throughout the duration of the contract.

Not everything sold as a franchise actually is one. RD 201/2010 itself excludes commercial concession or exclusive distribution, manufacturing licences, the simple transfer of a registered trademark and technology transfer. The distinction matters: the 20-day pre-contractual protection only applies to a true franchise.

Since Real Decreto-ley 20/2018, the Registry of Franchisors no longer exists: the franchisor does not have to register, nor can you demand this registration as a guarantee. The real guarantees are different: the trademark must be registered and valid at the OEPM (the Spanish Patent and Trademark Office) in the franchisor's name (or with a proven licence) and the network must have demonstrable experience.

Art. 3 of RD 201/2010 obliges the franchisor to provide you with written pre-contractual information at least 20 days in advance. As this is a period between private parties set in days, it is calculated in calendar days (art. 5 of the Código Civil, the Spanish Civil Code). The period does not only apply to signing the contract: it also applies before signing a pre-contract or before you make any payment (including a zone reservation). The information must be truthful and not misleading.

The dossier must cover at least the 7 blocks detailed in the table of this guide: identification of the franchisor, proof of the trademark, sector of activity, experience of the company and the network, content of the franchise with the investments and expenses of the standard business, structure of the network in Spain (including franchisees who left it in the last 2 years) and the essential elements of the contract.

The regulation does not set an express penalty for non-compliance, but the courts have annulled franchise contracts due to a defect in consent (error or fraud) when this information was not delivered or was false; the annulment action has a period of 4 years (art. 1301 of the Código Civil). Therefore, it is advisable that the delivery of the dossier is documented with a date and acknowledgement of receipt: it is the proof that the period was respected, for both the franchisee and the franchisor.

There are 3 financial clauses: the entry fee (initial single payment to join the network), the periodic royalty (a percentage of sales, a fixed fee or a mixed system) and the contribution to the common advertising fund. All are subject to 21% VAT. As the transaction is subject to VAT, it is not taxed under the onerous property transfers modality of ITP; and as the contract is usually formalised in a private document, it does not accrue the gradual AJD quota either (this would only come into play if it were elevated to a public deed and the requirements of art. 31.2 of the consolidated text of the ITPAJD were met). The contract must specify the basis on which the royalty is calculated, how it is declared and how the franchisor can audit it, and what the advertising fund is actually used for.

The territorial and temporal block defines your protection: territorial exclusivity (the area in which the franchisor commits not to open its own establishments or grant other franchises), the initial duration and the renewal conditions. Check if the franchisor's online sales invade your area, and avoid automatic renewals that only the franchisor can reject or notice periods that are impossible to meet.

The operational block includes what you receive and what is required of you: operational manual and transmission of know-how, initial training, continuous technical and commercial assistance, obligations to purchase from approved suppliers or minimum supply requirements, and the consequences of termination (removal of signs, return of the manual, repurchase or not of stock).

All of the above is negotiable. The franchisor's standard contract is your starting point, not a closed text: territory, duration, minimum purchases, penalties and exit agreements are modulated in the negotiation, and serious networks accept this. Managora identifies unbalanced clauses and proposes alternative wording before you sign.

No. Imposing a fixed or minimum retail price is a particularly serious restriction of competition law (art. 4.a of Reglamento (UE) 2022/720 and Ley 15/2007, the Spanish Competition Act): the clause falls outside the exemption and exposes the franchisor to penalties. What they can do is recommend a retail price or set a maximum price.

Beware of a recommended price that is mandatory in practice: if the franchisor imposes it through pressure or incentives (threat of termination, penalties, discounts conditional on respecting it), it is equivalent to a fixed price and is equally unlawful. Conditions can be agreed upon in network promotional campaigns, but the power to set your final price must remain yours.

During the contract, the non-compete clause (including the obligation to purchase more than 80% of your supplies from the franchisor) is only exempt if it lasts a maximum of 5 years; an indefinite duration or one with tacit renewal that prolongs it is not covered (art. 5.1.a of Reglamento (UE) 2022/720).

After termination, the post-contractual non-compete agreement is only admissible if it meets 4 conditions simultaneously: maximum 1 year, referring to goods or services that compete with those of the franchise, limited to the premises and land from which you operated, and indispensable to protect the transferred know-how (art. 5.3 of the same Regulation). An agreement of 2, 3 or 5 years after the contract, or one that prohibits you from working in the entire territory, exceeds the exemption.

The duty of confidentiality is different: the prohibition on using or disclosing know-how that has not become public domain can be agreed upon without a time limit (art. 5.3 of Reglamento (UE) 2022/720). Bear in mind also that the block exemption presupposes market shares of the supplier and buyer not exceeding 30% (art. 3); above this, clauses are analysed on a case-by-case basis.

The primary cause of litigation is inflated billing expectations: dossiers with sales forecasts that have no real basis in the network. The courts have found a defect in consent when the franchisor painted a picture of a business that did not exist. Before signing, ask for the calculation basis of each forecast (real data from comparable establishments, not theoretical projections) and speak with current franchisees and those who left: the dossier must tell you how many left the network in the last 2 years and whether it was due to the end of the contract or other causes.

The second is the abandonment of the franchisor: they collect the fee and disappear, without effective training, without assistance and without updating the method. The defence is in the contract: specify what assistance is provided (visits, support, continuous training), how often, and what consequences its breach has, including the power to terminate with compensation. A contract that only details your obligations and leaves the franchisor's in generalities is a warning sign.

Other common sources of conflict: a know-how without substance (a generic manual is not unique know-how), disproportionate penalties for early termination, clauses regarding stock upon termination and non-compete agreements that exceed legal limits.

Managora drafts or reviews your franchise contract, whether you are going to franchise your brand or join a network: we validate the period and content of the pre-contractual information, the limits of competition law and the balance of the clauses before you sign. It is a quoted service: tell us about your case via the chat and we will indicate the conditions in the procedure's file.