Buying a Franchise from a Master Franchisee: Check the Chain of Rights

When buying a franchise in Spain, you may enter into a contract with a master franchisee rather than directly with the brand owner. This structure allows a franchise network to develop through an operator who brings other business owners into the system. However, it adds another layer of dependency: your business may be affected by a contract to which you are not a party. Before investing, check the chain of rights and the safeguards for business continuity.

1. Establish what the master franchisee can grant you

The master franchisee receives certain rights from the original franchisor to develop the franchise within a territory. Where their agreement allows it, they can grant sub-franchises. It is therefore not enough for a company to present itself as a brand representative: it must have sufficient authority to offer you the specific business you intend to operate.

Ask for a simple outline identifying the brand owner, the original franchisor if different, and the master franchisee. Then request documentary evidence of:

• Their authority to grant sub-franchises in Spain and at your location.
• The activities, business formats and channels covered by that authority.
• The expiry date of their rights and the conditions for any extension.
• Any additional approvals needed to bring your outlet into the network.

This evidence may take the form of relevant extracts from the master agreement or confirmation from the original franchisor. A sales presentation does not, on its own, prove authority to grant sub-franchises. If confidentiality restrictions apply, work with your adviser to find a way to verify the position, rather than treating anything you have not checked as established fact.

2. Use pre-contractual information to check the structure

Spain has specific franchise legislation: Article 62 of Law 7/1996 on Retail Trade and Royal Decree 201/2010 establish the framework for franchising and its pre-contractual disclosure requirements.

Article 3 of the royal decree requires the franchisor or master franchisee to provide written, truthful and non-misleading information at least twenty working days before the contract or preliminary agreement is signed, or before the prospective franchisee makes any payment to the franchisor.

Two requirements are particularly useful in this type of transaction. Where a master franchisee is involved, the identifying information must also include details of their own franchisor. Evidence must also be provided of ownership of the trade mark, or a licence to use it valid in Spain, stating the duration of the licence and any legal challenges that could affect ownership or use.

This does not amount to an automatic right to receive the full master agreement. It is therefore worth expressly requesting evidence of the authority to grant sub-franchises and of any terms that could affect your outlet.

Do not rely on a claimed registration number from the former Register of Franchisors as proof of authorisation: the national requirement to notify that register was abolished in 2018. The decisive checks concern documents and contracts, not a listing in a directory.

3. Compare contract terms and the grounds for losing rights

Put three dates on the same page: the expiry of the trade mark licence, the end of the master agreement and the end of your contract. Any mismatch needs a documented explanation.

If you are offered a term longer than the time remaining on the master agreement, ask what makes it possible to honour that term. An operator's expectation of renewal does not offer the same security as a binding commitment to continuity accepted by the party entitled to grant the rights.

Also review what happens if the master agreement ends early. The master franchisee may breach its obligations, lose approvals or fail to meet development conditions over which you have no control. Ask for the circumstances that could affect your licence, supplies or access to the system to be identified.

Do not assume that meeting your own obligations protects you against every problem involving the master franchisee. Equally, do not assume that termination of the master agreement will necessarily end your contract: the consequences must be assessed in light of the applicable agreements and the particular circumstances.

4. Negotiate enforceable continuity arrangements

A promise that ‘the brand will take over’ needs supporting commitments. If continuity requires the original franchisor to assume obligations, a clause signed only by the master franchisee may not be enough to bind the original franchisor.

Ask a lawyer to assess whether a direct acknowledgement or an agreement between the parties involved would be appropriate. At a minimum, consider negotiating:

• Notice of issues that threaten the master franchisee's rights, with clear deadlines and specified recipients.
• Conditions for continuing directly with the brand or with a replacement operator.
• Treatment of fees paid in advance, deposits and services still to be provided.
• Transitional access to supplies, tools and support, where legally possible.
• Financial consequences if continuity cannot be guaranteed.

Also clarify whether a change of operator would involve new payments or changes to the terms. There is no general guarantee that you will automatically become a direct franchisee of the original franchisor.

Practical takeaway: before buying from a master franchisee, require evidence of their authority, compare the terms throughout the chain and document what will happen if they lose their rights. Your investment should not depend on a purely verbal promise of continuity.