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Everything you need to know about Franchise Contracts

Business Law
Everything you need to know about Franchise Contracts

A franchise agreement is a legal agreement between two parties, the franchisor and the franchisee, in which the franchisor allows the franchisee to use its trademark, products and services, and its business system. In return, the franchisee pays an initial fee and periodic royalties to the franchisor.

Legal aspects that you should know about Franchise Contracts in Spain

The most important legal aspects of franchise agreements in Spain, are the following:

  • The importance of due diligence: Before signing a franchise agreement, it is important to carefully research and evaluate the franchisor's brand and business system. This includes reviewing the history of the brand, its finances, royalties, license conditions, and the level of support and training offered.
  • The terms and conditions of the contract: The franchise contract must detail the terms and conditions of the relationship between the franchisor and the franchisee. This includes contract length, initial fees and periodic royalties, supply purchase requirements, and advertising.
  • The territory of the franchise: The franchise agreement must clearly establish the exclusive territory of the franchisee. It is important to ensure that the assigned territory is large enough to generate profit and that the franchisor does not allow new franchises to open in the same area.
  • Training and support: The franchisor must provide adequate training and support to the franchisee, including initial training and ongoing assistance in areas such as store management, marketing, technology support, and other relevant aspects of the business.
  • The termination of the contract: The franchise contract must detail the conditions under which it can be terminated by both parties. This may include failure to fulfill contractual obligations, bankruptcy or resignation of the franchisee, or infringement of intellectual property.
  • Intellectual property: The franchise agreement must clearly detail who owns the intellectual property of the brand and who has the right to use it. This includes trademark and copyright protection, and how they should be used in products and services. 

What are Franchise Agreements for?

Franchise agreements serve to establish a legal agreement between the franchisor and the franchisee, in which the franchisee is granted the right to operate a business using the trademark, products and services and a business system already established by the franchisor. 

These contracts allow the franchisee to benefit from the experience, knowledge and reputation of an already established brand, which can reduce the risks associated with building a business from scratch. In addition, franchise agreements can provide the franchisee with a competitive advantage in the marketplace, as the brand already has an established customer base and recognition.

On the other hand, franchise agreements also benefit the franchisor, since they allow them to expand their brand and their presence in the market, without having to assume the risks and costs associated with the creation of a new location. Additionally, franchise agreements can generate income through initial fees and periodic royalties paid by the franchisee. 

What are the Franchise Contracts both at the National and International level?

At the national level, franchise agreements are usually governed by the laws and regulations of the country in which the business is established. These laws establish the requirements that both the franchisor and the franchisee must meet and the terms and conditions that must be included in the franchise agreement. 

In general, national franchise agreements include terms and conditions such as the length of the agreement, initial fees and periodic royalties, exclusive territory, requirements for purchasing supplies and advertising, franchisee training and support, obligations of the franchisee and the franchisor, and the termination of the contract.

Internationally, franchise agreements can be more complex due to cultural differences, local laws and regulations, and logistical obstacles. In addition, international franchise agreements may be subject to international laws and regulations, such as the United Nations Convention on Contracts for the International Sale of Goods.

International franchise agreements may include specific clauses for the protection of intellectual property and trademark in the country of destination, compliance with local laws and regulations, payment of taxes, obligations of the franchisee regarding the supply of products and services, and dispute resolution.

How to know if a Franchise Agreement is good to improve commercial operations between companies? 

A good franchise agreement should clearly state the terms and conditions of the relationship between the franchisor and the franchisee. This should include details about the use of the trademark, the business system, the products and services, and any other intellectual property related to the trademark. 

In addition, the contract must clearly establish the obligations and responsibilities of both parties, including the payment of fees and royalties, the training and ongoing support that the franchisor will provide to the franchisee, and the terms and conditions of any transfer or sale of the business.

The contract must also include confidentiality and non-compete clauses, to protect the interests of both parties. It is also important to include a dispute resolution clause, in case disagreements arise between the franchisor and the franchisee.

A good franchise agreement should also be fair and equitable to both parties, and should reflect a relationship of collaboration and mutual support. You should clearly state the business objectives and expectations, as well as the performance measures and key performance indicators that will be used to assess the success of the business.

Are you looking for an expert law firm in Franchise Contracts in Spain? 

If you are interested in establishing a business using an established brand and successful business system, our franchise contract law firm in Spain can help you establish a fair and just relationship with the franchisor and ensure that your interests are protected. 

Our office has extensive experience in advising and drafting franchise agreements for a wide variety of sectors and business models. We will work closely with you to understand your goals and expectations, and to ensure that the contract reflects your specific needs and requirements. 

In addition, we will provide you with advice and support throughout the entire process of establishing your franchise business in Spain. This may include reviewing and negotiating the contract, obtaining financing, and creating a strong legal structure for your business. For more information, contact Forcam Lawyers.