Volume 12 - Issue 62
/ February 2023
189
http:// www.amazoniainvestiga.info ISSN 2322- 6307
DOI: https://doi.org/10.34069/AI/2023.62.02.18
How to Cite:
Bobryk, V., Karmaza, O., Makhinchuk, V., Tsvyetkov, A., & Koroied, S. (2023). Features of legal regulation of franchise
agreement in Spain. Amazonia Investiga, 12(62), 189-196. https://doi.org/10.34069/AI/2023.62.02.18
Features of legal regulation of franchise agreement in Spain
Особливості правового регулювання договору франчайзингу в Іспанії
Received: February 10, 2023 Accepted: March 20, 2023
Written by:
Bobryk Volodymyr1
https://orcid.org/0000-0002-2152-9937
Karmaza Oleksandra2
https://orcid.org/0000-0003-4895-5220
Makhinchuk Vitalii3
https://orcid.org/0000-0003-4360-0287
Tsvyetkov Andriy4
https://orcid.org/0000-0002-3239-322X
Koroied Sergii5
https://orcid.org/0000-0001-7899-957X
Abstract
The purpose of the article is to study features of
legal regulation of franchise agreement in Spain.
Research methodology. The research is based on
the use of general scientific and special-scientific
approaches such as dialectical, abstraction and
generalization, logical, system analysis,
historical and legal method, comparative and
legal, logical analysis. Research results. Among
the EU Member States, which have adopted
special acts regulating franchise agreement
issues, Spain is especially notable for its Royal
Decree 201/2010, which regulates the procedure
for concluding franchise agreement in detail.
Practical implication. It is stated that there is
statutory provision on pre-contractual disclosure
in Spain, the main purpose of which is to protect
a potential franchisee by providing him with the
relevant information. Value /originality. This
scientific work is the first research in Ukraine
devoted to the characteristics of franchise
agreement in a separate country (in Spain).
1
Doctor of Law Science, Senior Research Fellow, Head of the laboratory for the protection of subjective rights of the department of
private law problems, The F.G. Burchak Scientific-Research Institute of Private Law and Entrepreneurship of the National Academy
of Legal Sciences of Ukraine, Ukraine.
2
Doctor of Law Science, Professor, Professor Institute of Continuing Education, Taras Shevchenko National University of Kyiv,
Ukraine.
3
Doctor of Law Science, Professor, Deputy Director of the Institute for Research, The F.G. Burchak Scientific-Research Institute of
Private Law and Entrepreneurship of the National Academy of Legal Sciences of Ukraine, Ukraine.
4
Candidate of Law Sciences, Senior Researcher, Laboratory for the protection of subjective rights of the department of private law
problems, The F.G. Burchak Scientific-Research Institute of Private Law and Entrepreneurship of the National Academy of Legal
Sciences of Ukraine, Ukraine.
5
Doctor of Law Science, Professor, Leading researcher, Koretsky Institute of State and Law of National Academy of Science of
Ukraine, Ukraine.
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Keywords: franchising, franchise agreement,
franchisor, franchisee, pre-contract disclosure
duty.
Introduction
The history of franchising dates back to the 18th
century, when this term was first used in
America. The widespread use of this form of
cooperation began in the 60s of the last century
during the period of mass sales and the spread of
services in business activities. The most striking
examples of the use of the franchise in this period
are Holiday Inn, Burger Inn, MC Donalds,
Dunkin Donats, etc. (Tsesliv 2013, p. 352)
Over time, the application of this organization of
relationships between business entities only
expands, as it contains a number of advantages
for each of the parties. In particular, for the
franchisee, such a legal structure gives the
opportunity to start a new business successfully
tested by the franchisor. He also gets the right to
use a trademark known to consumers, the
opportunity to have all the benefits of the
franchisor's extensive advertising activities,
business technology, as well as the access to
credit resources, since it is enough often the
franchisor acts as a loan guarantor.
In turn, the franchisor expands its business in
new markets, gets closer to the consumer,
reduces the risk of losing its own capital and
receives additional income due to franchisee
fees.
The subject matter of the commercial concession
contract is the right to use objects of intellectual
property, commercial experience and business
reputation. The commercial concession contract
must describe in detail the goods and services
that must meet a certain standard, stipulate all
elements of the use of objects of intellectual
property rights. In addition, the contract defines
the terms of transfer, continuation and
termination of business relations between the
right holder and the user, the method and forms
of use of the object of intellectual property, as
well as the territory of its application, which can
be established according to the geographical
principle or the principle of administrative
division of a certain country.
Taking into account the European integration
course of our country, the Covid-19 pandemic,
which caused an adverse affect on the stable
function of economic and social spheres of the
society (Kharytonov et al. 2021, p. 158), it is
advisable to examine the experience of leading
European countries related to this issue for the
further implementation of positive practice into
our legislation.
Thus, the purpose of the presented research is to
determine the features of legal regulation of
franchise agreement in Spain, since this State
developed rather detailed and regulated
legislation in respect of this institution.
Methodology
The methodological basis for the research is
general scientific and special methods.
Among general scientific methods, dialectical
method was applied when analyzing the
development of the institution of franchising in
the world in general and in Spain in particular.
The method of abstraction and generalization
made it possible to determine the advantages of
franchising activity.
Logical method helped to build the structure of
the research, moving from general issues such as
franchising activity to special ones (definition of
the franchise agreement in the studied country,
rights and obligations of the parties to the
franchise agreement, termination of the contract,
etc.).
As for special scientific methods, the method of
system analysis was applied during the study of
the concept of franchise agreement in Spain.
With the help of the historical and legal method,
the evolution of franchising in Spain, as well as
individual aspects and features of the franchise
agreement establishment in this country were
examined.
The comparative legal method was used when
considering the rules of Spanish legal
Bobryk, V., Karmaza, O., Makhinchuk, V., Tsvyetkov, A., Koroied, S. / Volume 12 - Issue 62: 189-196 / February, 2023
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instruments, governing the procedure for
concluding this type of contract.
The method of logical analysis was applied in the
process of determining the main concepts of the
research, such as “franchising”, “franchise
agreement”, “disclosure obligations”, “principle
of acting in good faith”.
Literature Review
Over the last few years, the phenomenon of the
franchise as a modern method of doing business
has seen a a marked rise in Spain, with annually
increasing indicators of around 40%. As a result,
Spain’s retail trade undergoes considerable
transformations and becomes ever closer to the
characteristics to that prevailing in other EU
States (Gámir & Méndez 1999).
Rodríguez and Díez (2021) provided the
definition of franchise agreement, which is a
contract between companies (the franchisor and
the franchisee) with the objective of creating a
uniform distribution network with limited
investment.
Quintana and Cazalilla (2022) proposed the
following concept of franchising activity, which
is defined in Spain as that which is carried out by
virtue of a contract whereby a business entity (the
franchisor), gives another (the franchisee), in a
provided marketplace, in return for a financial
renumeration, the entitlement to manage a
franchise, on a business activity that the first has
performed with consiferable accomplishment, in
order to sell particular goods or services.
Salinas (2021) stresses that franchisors can work
in Spain without being enrolled as franchisors
and there is no need to sign up their franchise
agreements in the Franchising Registry. Prior
Spanish legislation required such enrolment, but
this obligation was cancelled in 2018 to address
unnecessary bureaucracy and ease the
distribution of franchising in the State.
Lourdes and Ballesteros (2018) investigate the
abovementioned franchisors’ duty of disclosure
and registration and the legality of its suspension
by the Spanish Ministry of Economy.
Ester (2018) considered breach of obligations
under franchise contracts in Spain. In particular
the lawyer investigated the Supreme Court
judgment 438/2018 of 11th September which
deals with the breach of obligations contractually
agreed between a franchiser and a franchisee and
proposed his qualified conclusion on this issue.
Results and Discussion
Spain has rather strong economy compared to
economies of other European countries.
Currently, it ranked 49th out of 183 countries in
the World Bank Group’s Ease of Doing Business
Ranking (the countries with the most favorable
conditions for doing business).
The largest sectors of franchising in Spain are:
the food products sector (with an average
turnover 2,151 million euros); restaurant
business and fast food (with an average turnover
1,730 million euros); retail trade (with an average
turnover 1.192 million euros); service sector
(with an average turnover 1,233 million euros).
In 2015 there was an increase from 83% to 89%
in new franchises, and a growth of 11% to 17%
in international brands, totalling 138 new
franchisors. Most new franchises in 2015
appeared in the such spheres: online
entrepreunership, self-care, training, restaurants
and take-away, specialized foodstuffs, personal
hygiene (Echarri 2016).
In 2020 a total of 1,381 franchised brands
operated in Spain, and although the Covid-19
pandemic influenced the franchising sector in
2021, it was only temporary and its extension
continued in 2022 (Salinas 2021).
The main franchise association in Spain is the
Spanish Association of Franchising (Asociación
Espanol de Franquicias – AEF), which belongs
to the Iberian-American Federation of
Franchising, the European Federation of
Franchising and the World Franchising Council.
Membership in the national association is not
mandatory, but it is recommended as it promotes
the participation of franchisors in international
and national exhibitions; provides funds for
specific commercial missions; helps to
harmonize relationship between a franchisor and
a franchisee; grants data and conducts education
on franchising issues; provides information to
potential investors, etc.
On May 28, 2014, AEF entered into an
agreement with the World Intellectual Property
Organization (WIPO) to promote arbitration in
master franchise agreements. Spanish lawyers
working in the field of franchising have been
fully trained on WIPO’s Alternative Dispute
Resolution (ADR WIPO), and the AEF is
currently helping to determine if a potential
candidate has sufficient experience to be
appointed as an arbitrator of WIPO.
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Franchisees set up franchise networks in the
country, using different legal and organizational
forms of legal entities, but the most common in
Spain are: sociedad limitada (is a type of business
venture, where the asset is split into shares and
the liability of the associates is restricted by this
fund) , sociedad limitada nueva empresa (this
company will compromise a maximum of five
members) and sociedad anónima (the capital of
the company is divided into shares and includes
the contributions of all its members who do not
bear responsibility for private assets). Empresa
conjunta (joint venture) is also a widespread form
of franchise in this State. The joint enterprise is
not foreseen by Spanish law, but it falls under the
regulation of the civil legislation, which permits
the establishing new contract-based forms in
accordance with the principle of contractual
freedom (Sönke 2019).
There is no special law on franchising in Spain.
Relationships between the parties are regulated
by the Law 7/1996 on retail trade, the Royal
Decree 201/2010 of February 26, 2010 regulating
franchise business and transferring data to the
Register of Franchisees, the Law 14/2013 (2013)
on the support of entrepreneurs, the Law 20/2013
of December 9, 2013 on the guarantee of market
unity.
According to clause 62.1 of the Royal Decree
2485/1998 of November 13, 1998 to the Retail
Trade Act (Real Decreto 2485/1998),
commercial franchise activity is the occupation
which is carried out under the contract by the
company called the Franchisor, which transfers
to another company – Franchisee the right to
realize activities within the Franchisor’s business
system for the sale of goods or services.
Definition of a franchise agreement was first
provided in the Law 7/1996 of January 15, 1996
on regulating the retail trade (hereinafter – the
Law 7/1996) (Ley 7/1996). It states, in particular,
that «commercial activity is carried out under the
agreement, according to which the franchisor
transfers the franchisee the right to use his
marketing system of goods and services».
This definition has been somewhat improved by
the Royal Decree 201/2010 (Real Decreto
201/2010). Thus, clause 1 of this Decree states
that franchising is a business in duty-free
treatment, regulated in article 62 of the
Law 7/1996, which is carried out under the
contract by which a company, the franchiser,
gives way to another, the franchisee, in a given
market, in exchange for a direct financial
consideration (indirect or both), the right to the
exploitation of a franchise, about a business or
commercial activity the first come previously
developed with sufficient experience and
success, to market certain types of products or
services.
According to the Royal Decree 201/2010 (Real
Decreto 201/2010), the franchise should
compromise at least: a) the use of a name or
common label or other rights of intellectual or
industrial property and a uniform presentation of
the premises or means of transport subject to the
contract; b) transfer the basic, definite and
distinctive proficiency to the franchisee; c) day-
to-day tech and enterpreunial aid provided by the
franchisor for the duration of the agreement,
without considering the implementation of the
general supervision that can be set in the contract.
This definition clearly demonstrates the main
purpose of the contract – marketing of goods and
services, with an emphasis on commercial
distribution. On the other hand, the Supreme
Court of Spain (Tribunal Supremo) has decided
that the franchise agreement is the contract
concluded between juridically and commercially
autonomous parties, according to which the
franchisor provides the franchisee with the right
to applicate, under particular terms, within
determined timeframe and in a identified
territory, a procedure in a certain type of activity,
in return for relevant payments by the
franchisee.
There is a statutory provision on pre-contractual
disclosure in Spain. Thus, section 62, paragraph
2 of Law 7/1996 provides for the obligation of
the franchisor to register in a special register
within three months from the beginning of its
activity. The Register of Franchisees of Spain
records information on those entities that transfer
rights to use certain objects of intellectual
property right on the basis of franchise
agreements. The physical person or legal entity
intending to perform franchise operation of
transfer of franchise in Spain must communicate
their data, within three months from the
beginning of the activity, or the registration of the
autonomous community where they plan to start
their activities, or when the autonomous
community does not establish the need for
communication of data to the same, to the
register of franchisors from the Ministry of
industry, tourism and trade, for informational
purposes. Communication to the register of
franchisors does not condition the start of the
activity. The lack of data communication expiry
of the aforementioned period will result in the
corresponding sanction, in accordance with the
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penalties provided for in the Law 7/1996 and
other applicable legislation.
At least of twenty business days delivery by the
future franchisee to the franchisor of any
payment or the signature of the contract or pre-
contract of franchise, the franchisor or main
franchisee must give the potential franchisee the
following truthful and not misleading
identification data in written: name or company
name, address and registration in the register of
franchisors as well as, in the case of a commercial
company, social capital picked up in the last
balance sheet, with expression of is fully paid up
or in what proportion and registration data in the
register, as appropriate.
The main purpose of this commitment is to
protect a potential franchisee, which, according
to the legislator, is a «vulnerable» party, by
providing him with the relevant information in
order it could value the terms of the future
contract before it is concluded. In addition, the
Royal Decree also protects the interests of the
franchisor, allowing him to demand from the
franchisee of non-disclosure of all pre-
contractual information that has been disclosed
(Article 4).
Franchisors are obliged to provide potential
franchisees with the following information:
1) information about the franchisor (name,
address, data on its share capital on the last
balance sheet, etc.). Foreign franchisee must
disclose the information on its registration in the
Franchisors Registry in accordance with their
national rules; 2) confirmation of ownership or
license allowing the use of the trademarks and
other intellectual property rights; 3) a description
of the franchisor’s practice that includes the day
of registration and the main phases of its
development and the evolution of the franchising
sheme; 4) the nature and features of the franchise
and the terms of its use, i.e. clarification of the
entrepreneurial concept, the know-how and the
content of continual ecomomic or technical
support provided by the franchisor; 5) an
assessment of the required initial costs and
investment.
In relation to the civil effects of the default by the
franchisor in complying with its pre-contract
disclosure obligations, the question is whether
non-compliance with section 62.3 of the
Law 7/1996 affects the validity of the franchise
contract, that is, whether the contract is invalid
because of a previous violation of the rules of
«public order». In some cases, Spanish courts
(including the decision of the Supreme Court)
recognized the franchise agreement invalid on
the basis of non-observance the franchisor’s pre-
contract disclosure obligation or for serious
misrepresentations made in the disclosure
document. However, in some cases, courts
decided that non-observance of the pre-contract
disclosure obligation is an administrative default,
since it is a violation of the Royal Decree
201/2010 and therefore does not imply the nullity
of the franchise agreement. If the
misrepresentations made by the franchisor in the
disclosure document are insignificant, Spanish
courts do not assert the complete nullity of the
franchise agreement. Instead of it a franchisee
obtains the right to terminate the agreement and
claim damages (Echarri 2016).
Besides the pre-contract disclosure obligation,
there is a requirement to act in good faith in
Spanish legislation. According to it the parties to
any agreement has to act faithfully. This
commitment is stipulated in clauses 7 and 1258
of Código Civil (1889) and clause 57 of the Code
of Commerce (1885). In addition, a franchisor
and a franchisor may compose codes of good
practice, in which additional provisions
concerning the good faith would be foreseen. It
should be noted that even during the franchise
agreement negotiations, the parties must act
conscientiously (buena fe in contrahendo).
This principle, when applied to a franchise
agreement, should restrict the freedom of choice
of the parties in order to protect their legitimate
expectations during contract negotiations. For
example, both parties may disclose confidential
information about their activities, but for the
protection of their interests they may conclude a
non-disclose agreement. This document may be
also signed when performing the agreement (for,
that the franchisor possesses all intellectual
property rights used by the franchisee during the
execution of the contract) (Sönke 2019).
Rights and obligations of the parties to the
franchise agreement are not prescribed at the
level of legislation. Therefore, the franchise
agreement must clearly specify only those rights
and obligations which are specific to a particular
type of the franchise. All common pledges or
activities (non-payment, dissolution, etc.) are
regulated by the Civil Code and the Commercial
Code. Though, in fact, the more comprehensive
the agreement is preferably.
The franchisee is entitled to: 1) the application of
the franchise and its intellectual property rights;
2) receiving regular tech aid and learning;
3) obtaining know-how; 4) obtaining constant
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commercial and promotional assistance;
5) holding of its psrticular area, if provided; 6) no
rivelry by the franchisor, if provided;
7) dissolution of the contract in case of non-
fulfillment of obligations by the franchisor.
The franchisee, as a rule, is obliged to: 1) afford
duties and fees; 2) respect franchise
specification; 3) not to violate intellectual
property rights and report local infringements;
4) comply with territorial restrictions; 5) observe
all instructions, know-how and learning duties;
6) respect all native rules and customs;
7) observe the requirement of confidentiality
before, during and after the termination of the
contract; 8) сomply with accounting and
reporting standards; 9) act in good faith and as a
diligent business person.
The franchisor is eligible for: 1) receiving
payments and royalties in due course;
2) reviewing the accounts and audits by the
franchisee; 3) obtaining reports on the
franchisee’s activity; 4) monitoring the
performance of the franchisee’s duties; 5) set the
franchisee’s territory; 6) demanding learning and
observance of the guidelines; 7) offering and
seting boundary prices; 8) providing goods;
9) creating promoting shemes; 10) interfering in
case of non-fulfillment of obligations;
12) applying non-competition rules;
13) dissolving the contract in case of non-
execution by the franchisee.
The franchisor is obliged to: 1) provide reliable
information prior to the conclusion of the
contract; 2) ensure the safe use of franchise and
other intellectual property rights; 3) provide
ongoing technical help and education; 4) direct
advertising and promotional support; 5) observe
the franchisee’s area; 6) adhere to all relevant
rules and orders; 7) to act faithfully and honestly
(Echarri 2016).
The duration of franchise agreement in Spain is
not legally binding; the parties may determine it
at their own discretion. Depending on the type of
franchise, the franchise agreement is concluded
for a period from five to ten years.
The franchise agreement, which is concluded for
a limited period, is terminated only after the
expiration of this term. The law, as it was already
mentioned, does not provide for the fixed term of
the franchise contract, however, according to the
doctrine of the courts, usual contractual relations
should be limited in time. This means setting a
certain limit for the debtor. Therefore, in
accordance with the Spanish civil legislation, any
provision imposing an indefinite period of
validity of the franchise agreement will be
considered as invalid.
Based on the foregoing, it can be concluded that
franchise contracts, in which it is provided for a
limitness period of the contract, may be one-
sidedly terminated by either party. In addition,
contracts limited by a certain period of time, but
containing provisions for automatic prolongation
may also be terminated by either party at the end
of the agreed period.
It is prohibited to terminate the contract as a
result of abuse of the law; during the termination
the principles of equity and good faith must be
observed; in case of non-execution of terms of
the contract, the damages incurred must be
reimbursed. The agreement may also be
dissolved by shared consent of the parties.
Until the expiration of the franchise contract, the
franchisor has the right to terminate the
agreement in case of: 1) failure by the franchisee
to fulfill his obligations under the contract or the
statute, or the repeated failure to fulfill his
obligation, if he was given such an opportunity in
accordance with the terms of the franchise
agreement; 2) death of the franchisee, if the
contract is inseparably linked with his person;
3) unauthorized shift of monitoring in the
franchisee; 4) dissolotution of the franchisor’s
rent/subrent agreement during the term of the
franchise contract; 5) criminal proceedings in
relation to the franchisee; 6) withdrawal of the
franchisee or franchisee’s funds by the third party
or the public authority; 7) failure to observe
native franchising rules (Echarri 2016).
Unlawful termination of the agreement obliges
the franchisor to renew it and to compensate any
harm suffered by franchisee or to compensate for
losses if it isn’t possible to renew the contract.
Cancelation of the contract by expiration of its
term does not oblige the franchisor to resume it
or to pay compensation to the franchisee for
refusal to renew it, unless it is foreseen by the
franchise contract itself. Refusal to renew the
contract, if it contains a provision for renewal,
allows the franchisee to apply to the court for the
protection of his rights and to demand the
renewal of the franchise agreement and
compensation for losses incurred.
In practice, the franchisee obtains the right to
renew the contract under certain conditions.
These conditions are as follows: 1) franchisee
performs all obligations under the contract;
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2) franchisee does not violate any local laws or
rules of business activity; 3) franchisee agrees
with the terms of the renewed franchise
agreement; 4) the franchisee pays a contribution
for the renewal of the contract.
Conclusion
Consequently, on the basis of the foregoing, the
following conclusions can be made. In Spain,
there is no special law on franchising, but this
issue is sufficiently regulated, in particular by the
Law 7/1996, in which the definition for the
franchise agreement was first formulated.
Among the EU Member States, which have
adopted special acts regulating franchise
agreement issues, Spain is especially notable for
its Royal Decree 201/2010, which not only
secured the franchisor’s obligation to reveal the
potential franchisee all the information in writing
concerning the franchisor itself and the subject
matter of the franchise agreement, which is
necessary for the franchisee for objective
assessment of the need to conclude the relevant
franchise agreement, but also in which the
procedure for the registration of franchisors,
franchisors’ record-keeping and computerization
of the Register is regulated in detail. Another
feature of Spain is that in this country the
legislator has not only taken care of the interests
of the potential franchisee, but also of the
franchisor’s, who when disclosing the
information in the pre-disclose document, takes
the risk of losing his trade secrets or other
confidential information. The franchisee, in its
turn, also obliges not to disclose information
received from the franchisor.
It should be noted that the pre-contract disclose
obligation is secured in internal regulatory acts.
This means that there is no need for courts of this
country when considering cases connected with
the breach of this obligation to refer to the
general principle of contract law «culpa in
contrahendo» (the principle of pre-contract
obligation), which is adjusted to the litigation of
the countries where such an obligation is not
provided for.
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