Franchise Agreements in Spanish Tourism: Legal Framework
Forms of Inter-Company Collaboration in Tourism: Contracts Between Tourism Businesses
Franchise Agreements in Spain
In Spain, there is no specific legislation that regulates franchises. The legal description can be found in article 2 of Real Decreto 2485/1998, de 13 de noviembre, which regulates the exercise of commercial activity under a franchise regime and the communication of data to the registry of franchisors. This decree develops article 62 of Ley 7/1996, de 15 de enero, de Ordenación del Comercio Minorista (LOCM).
Essential Elements of a Franchise Agreement (Article 2, Real Decreto 2485/1998)
- An agreement between companies (Franchiser and Franchisee).
- The transfer of rights for the marketing of products and/or services.
- A payment of any kind for the transfer of the right to market the franchise.
- The right transferred by the franchiser to the franchisee should include at least:
- The use of a common denomination or similar sign.
- Uniform presentation.
- Know-how.
- The provision of commercial and technical assistance throughout the duration of the contract.
- It is not necessary to record the contract in writing (although the existence of documentary proof is usual).
- The parties may insert clauses into the contract as they deem necessary.
Requirements for Franchise Agreements
- Duty of Transparency: The franchiser, other than registering in the appropriate Registry, must supply the potential franchisee with a host of information (article 62 LOCM).
- Disclosure: The disclosure, which is imposed by art. 3 RD 2885/1998, must be truthful and given in writing at least 20 days prior to the signing of any contract or preliminary contract or prior to the payment of any sum on the part of the potential franchisee.
- Information to be Supplied by the Franchisee:
- Information regarding the characteristics of the franchiser (name, address, Franchiser’s DI number, data of inscription at the Companies Register, last balance sheet approved, etc.).
- Evidence of property of trademarks.
- A general overview of the business sector to which the franchise belongs.
- An estimated investment and expenditure plan to be carried out by the franchisee.
- An explanation about the Franchiser’s experience (date when the franchise was created, evolution, development of the franchise network).
- Explanation of its know-how and technical and commercial assistance that will be provided by the Franchiser.
- Structure and size of the network in Spain.
- A list of franchisees who have terminated their contracts in the two previous years.
- A statement of the franchise contract (rights and duties, termination and renovation clauses, economic terms, exclusivity requirements, etc.).
Other Important Considerations
- Term: The duration can be freely determined by the parties (the majority of franchises are agreed for a period of between 5 and 10 years).
- Trademark License or Distinguishing Marks: The franchiser must be in possession of the trademark register which he is licensing to the franchisees. The license must not have been revoked.
- Know-How: This is the combination of unpatented practical knowledge that is the result of the franchiser’s experience and has been confirmed by him, is secret, substantial, and has been identified.
- Confidentiality: It is advisable to establish a duty of confidentiality, not only on the franchisee as such, but also on his directors and employees, whose contracts shall include confidentiality clauses and their corresponding penalty clauses in the event of a breach.
- Non-Competition Clause: For the duration of the contract, the franchisee may not be authorized to carry out such activities as may be in direct competition with the franchise business.
- Territorial Exclusivity for the Franchisee: This is not necessary.
- Goodwill: Upon termination of the contract, there is the possibility of damage claims by the former franchisee against the franchiser or the new franchisee, as regards the clientele.
- Royalties: The contract involves the existence of a payment for the transfer by the franchiser in favor of the franchisee. There is a variety of types of payment and calculations.
- Advertising: The design of general advertisement campaigns must always be reserved to the franchiser.