Franchising: put sales promises into the contract

A sales presentation may persuade you to buy a franchise, but it does not always explain what you will be entitled to expect afterwards. A transparent franchise relationship starts with distinguishing expectations from commitments. Before investing, check that the promises central to your decision are documented and, where appropriate, incorporated into the contract with a clearly defined scope that you can verify.

1. Separate sales pitches from obligations

‘We support you every step of the way’ and ‘it’s an easy business to run’ are too vague to guide an investment decision. They do not say who will do what, when or with which resources. Your first task is to turn them into specific questions.

Prepare a table with four columns: the statement made, the document in which it appears, its importance to your decision and the commitment you need clarified. Include presentations, emails, messages and tailored proposals, keeping a record of their dates and versions.

Distinguish between three categories:

• Description of the business model: explains how the business usually operates, but may allow for variations.
• Forecast or estimate: sets out a possible outcome based on certain assumptions; it is not, in itself, a guarantee.
• Specific commitment: identifies something to be provided, who is responsible and the conditions for delivery.

For example, ‘head office will help with the launch’ needs more detail. If that support is essential to your decision, ask what activities it covers, who will carry them out, for how long and whether there will be additional charges. Replacing one ambiguous phrase with another equally vague one is not enough.

2. Check promises against the legally required disclosures

In Spain, franchising is governed by Article 62 of Law 7/1996 on the Regulation of Retail Trade and Royal Decree 201/2010. No single piece of legislation settles every contractual detail: general rules on obligations and contracts also apply.

Article 3 of Royal Decree 201/2010 requires written, truthful and non-misleading information to be provided at least twenty working days before a franchise agreement or preliminary agreement is signed, or before the prospective franchisee makes any payment to the franchisor.

Among other things, this information must explain the characteristics of the business, its know-how, the ongoing commercial or technical assistance available, and the estimated investment and start-up costs. It must also set out the essential elements of the agreement, including the parties’ rights and obligations.

In addition, where the franchisor provides sales or operating performance forecasts, these must be based on sufficiently substantiated experience or studies. Ask for the assumptions and supporting basis to be identified. A documented forecast still does not necessarily amount to a guaranteed return.

Compare these explanations with what you were told during the sales process. If a presentation promises something that does not appear in the subsequent documentation, ask for written clarification before proceeding. Pre-contractual disclosures and the contract serve different purposes: receiving the former does not replace reviewing the latter.

3. Turn decisive commitments into verifiable clauses

You do not need to transfer every advertising claim into the contract. You should, however, include commitments without which you would not buy the franchise or would change your budget.

For each one, agree in writing:

• Scope: what is included and what is excluded.
• Responsibility: which entity must fulfil the commitment, even if it uses third parties.
• Timing: when it will be delivered and which requirements you must meet beforehand.
• Cost: whether it is included in the agreed payments or charged separately.
• Verification: how delivery will be evidenced.

For example, a promise to review the proposed premises design could be defined as the delivery of a report on the plans, specifying its scope and deadline. It should also be clear that this review does not replace any necessary regulatory approvals or technical work.

If an annex is used, identify its title, date and version, and expressly include it among the contractual documents. Ask for the contract to specify which document takes precedence if there are inconsistencies. Essential commitments should not be scattered across conflicting files.

4. Review clauses that could undermine the promises

Pay attention to ‘entire agreement’ clauses, statements that you have not relied on earlier representations, and powers to make unilateral changes. These can lead to disputes over the scope of what was agreed, especially if the contract leaves out an important sales promise.

Such clauses do not automatically mean that all earlier information has no value or that legal liabilities disappear. Their effect depends on the wording, the circumstances and the applicable law. Have them reviewed by an independent lawyer.

Do not sign statements that contradict what actually happened, such as acknowledging receipt of documents you were never given. If discrepancies remain, request a corrected version before signing and keep a complete record.

Practical tip: choose the three promises that most influence your decision to buy, then identify where they are recorded, who must fulfil them and how you will verify delivery. If any answer is missing, there is still something to negotiate.