Franchising in Spain: economic significance and the evolution of the regulatory framework
Franchising has established itself as a model for business expansion in sectors such as catering, fashion, personal services, healthcare and education. Spain does not have a single law regulating franchise agreements as a whole. Instead, there are three layers of legislation that should be distinguished.
1. Specific regulation: transparency and registration.
The basic legislation is Law 7/1996 of 15 January on the Organisation of Retail Trade (LOCM). Article 62 defines franchising as the activity whereby one company grants another the right to operate its own system for the marketing of products or services. Its purpose is to protect the franchisee through transparency; it therefore obliges the franchisor to provide information in advance and to register with the relevant authority.
This Act is implemented by Royal Decree 201/2010 of 26 February, which replaced the previous Royal Decree 2485/1998 of 13 November. The Royal Decree sets out two practical obligations: the pre-contractual information that the franchisor must provide to the prospective franchisee before they sign or pay any sum (at least twenty working days in advance); and the submission of details to the Register of Franchisors.
2. Competition law: what clauses may be agreed.
Franchise agreements often include clauses that restrict competition, such as territorial exclusivity, non-competition agreements or price restrictions. Their validity depends on competition law.
At European level, the applicable legislation is Regulation (EU) 2022/720, in force until 31 May 2034 and supplemented by the Commission’s Guidelines on vertical restraints. This Regulation sets out which agreements are exempt and which are not. For example, the franchisor may not impose a fixed or minimum resale price. In Spain, Law 15/2007 on the Defence of Competition applies these same criteria.
3. Freedom of contract: the contract as the primary rule.
Apart from the above, the principle of freedom of contract set out in Article 1255 of the Civil Code applies. In practice, the rights and obligations of the parties depend above all on what is set out in the contract, which means that its wording plays a decisive role.
Legal nature of the franchise agreement: an atypical, commercial and collaborative contract
The franchise agreement is atypical in a substantive sense.
The legislator has defined the scope of the activity and regulated pre-contractual information, but has not laid down the reciprocal rights and duties of the parties. It is a commercial, bilateral, remunerated contract of continuing performance. It combines elements of the licensing of industrial and intellectual property rights, supply contracts, service provision and business collaboration.
Furthermore, the franchisor and franchisee are independent entrepreneurs, both legally and economically. This independence distinguishes franchising from an employment relationship, an agency arrangement and integration into a corporate group, and must be preserved both in the contract and during its performance.
Essential characteristics of franchising: system, trade mark, know-how and ongoing support
Article 62 of the LOCM describes franchising as an activity carried out under an agreement whereby one company, the franchisor, grants another, the franchisee, the right to exploit its own system for the marketing of products or services. From this definition, supplemented by contractual practice and legal doctrine, the following characteristics emerge.
Proprietary marketing system.
The system must be proven and replicable, and must have been previously operated by the franchisor for a sufficient period to demonstrate its viability. This requirement protects the franchisee from purely experimental projects.
Transfer of the trade mark and distinctive signs.
A franchise involves the use of a common name or sign and a uniform presentation of the premises, which project a consistent image of the network to the consumer. This requires a licence for the trade mark and other distinctive signs. The franchisor must prove ownership or the right to grant such use. In Spain, the licence is governed by Law 17/2001 on Trade Marks and, in the case of an EU trade mark, by Regulation (EU) 2017/1001.
Transfer of know-how.
This is probably the most valuable element of the system. Know-how is the body of non-patented practical knowledge derived from the franchisor’s experience and the tests carried out by the franchisor. To be relevant, it must be secret, substantial and identified. In practice, its transfer is facilitated through operating manuals, initial training and technical documentation. The contract must identify these elements and provide for their periodic updating.
Ongoing commercial and technical assistance.
A franchise does not end with initial training. The franchisor must provide assistance throughout the term of the contract, which includes operational support, system updates, marketing support and regular training. The contract must define the content and extent of this assistance, as failure to comply may justify termination or a claim for damages. The assistance must be genuine and verifiable, and not merely a declaration of intent.
Pre-contractual duty to provide information and the Register of Franchisors
One of the most significant features of the Spanish framework is the franchisor’s obligation to provide the prospective franchisee, in writing, with accurate and non-misleading information about the franchise. This must be done at least twenty working days prior to the signing of any contract or preliminary agreement, or prior to the payment of any sum.
Failure to comply with this duty is not a mere administrative irregularity. It may form the basis for actions for annulment on the grounds of mistake or fraud (Articles 1265, 1269 and 1270 of the Civil Code), as well as claims for pre-contractual and contractual liability. Therefore, the pre-contractual information document must be drawn up with the same rigour as the contract itself.
The franchisor must also submit its details to the Register of Franchisors in accordance with Royal Decree 201/2010. This is a separate obligation from that of providing pre-contractual information, and failure to comply may result in penalties. The details submitted must be kept up to date.
Minimum content of the franchise agreement
Although the law does not impose a fixed list of contractual provisions, a risk analysis suggests that the agreement should, at a minimum, regulate the following matters: the subject matter and territorial scope, specifying whether exclusivity is granted; the licence for the trade mark and other industrial and intellectual property rights; the provision and updating of know-how and manuals; training and ongoing support; and the financial arrangements, including the franchise fee, royalties, advertising funds and any supply obligations.
With regard to pricing, Regulation (EU) 2022/720 excludes the setting of fixed or minimum resale prices from the exemption. The franchisor may only impose maximum prices or make recommendations, provided that these do not amount to fixed or minimum prices due to the pressure or incentives applied. As regards non-competition, obligations of indefinite duration or exceeding five years are excluded from the exemption. Post-termination agreements are only permitted in exceptional circumstances: limited to one year, to the premises from which the franchisee operated, and to what is strictly necessary to protect the know-how.
The duration, renewal conditions and grounds for termination must also be addressed, as well as the effects of termination: the return of manuals and distinctive signs, the liquidation of stock and any compensation. Finally, the assignment of the contract, the protection of the network’s customers’ personal data in accordance with Regulation (EU) 2016/679 and Organic Law 3/2018, and the applicable law and dispute resolution mechanism—whether judicial or arbitral—must be addressed.
Conclusion
The franchise agreement is not governed by a single comprehensive law, but it does not operate in a regulatory vacuum. Act 7/1996 and Royal Decree 201/2010 impose a duty on the franchisor to inform the prospective franchisee prior to entering into the contract, with at least twenty working days’ notice, and to submit their details to the Register of Franchisors. Regulation (EU) 2022/720 and Act 15/2007 define which exclusivity, pricing and non-competition clauses are valid. In all other respects, the contract is the primary governing document for the relationship.
The licence of the trade mark, the transfer of know-how and ongoing support are the pillars of the system.
A contract that defines these elements precisely protects the franchisor’s network and provides security for the franchisee.
The Commercial Law Department at Belzuz Abogados, S.L.P., in Madrid, advises franchisors and franchisees at every stage of the relationship, from the drafting of pre-contractual documentation through to the negotiation and drafting of the contract.