Personal guarantees when buying a franchise in Spain

Buying a franchise can involve more than investing capital: the franchisor, bank or landlord may ask you to personally guarantee your company’s obligations. In a franchise transaction, this guarantee deserves a separate review. Even if you operate through a limited company, a personal guarantee can expose your personal assets to certain business debts. Before agreeing to one, establish its scope and negotiate its limits.

1. Identify each guarantee and whom it protects

The Spanish term ‘aval’ is commonly used for different types of undertaking. It is not enough for a proposal simply to mention a guarantee: you need to know which document creates it, who can make a claim and under what conditions.

When preparing for the purchase, distinguish between these possible requirements:

• Guarantee in favour of the franchisor: this may cover franchise fees, supplies, contractual penalties or other obligations under the agreement.
• Loan guarantee: this backs the financing provided by the bank to the company.
• Lease guarantee: this covers obligations owed to the landlord of the premises.
• Bank guarantee: the bank guarantees payment to a beneficiary, but may require you to reimburse any amount it pays and provide counter-guarantees.

These obligations can accumulate. A cap agreed with the franchisor does not limit what the bank can claim under a separate document.

Draw up a table listing the creditor, principal debtor, guarantor, debts covered, maximum amount and end date. Do not assess your exposure on the basis of a single contract. Also review appendices, formal financing documents and separate guarantee documents.

2. Understand what this means for your personal assets

In Spain, a surety guarantee, known as a ‘fianza’, is governed by the Civil Code. Under this arrangement, one person undertakes to pay or fulfil an obligation on behalf of another if that person fails to do so. The guarantee must be expressly given and cannot extend beyond its terms, making the wording crucial.

Under an ordinary surety guarantee, the ‘beneficio de excusión’ allows the guarantor, subject to conditions and exceptions, to require the creditor to pursue the principal debtor’s assets first. However, joint and several guarantees and waivers of statutory protections are common. In those cases, the creditor may be able to claim against the guarantor without first exhausting the company’s assets.

Look for expressions such as ‘fiador solidario’ (joint and several guarantor), ‘renuncia a los beneficios de excusión y división’ (waiver of the rights to require prior enforcement against the debtor and division of liability between guarantors), or ‘a primer requerimiento’ (on first demand). These are not mere formalities: they must be interpreted in the context of the whole document. An on-demand guarantee may operate differently from an ordinary surety guarantee.

Setting up a limited company does not neutralise a personal guarantee. If you also sign as guarantor, you take on an obligation in your own right. The implications for jointly owned assets or family wealth require a specific assessment of ownership and, where relevant, the matrimonial property regime.

Franchising is also subject to specific rules: Article 62 of Law 7/1996 on the Regulation of Retail Trade and Royal Decree 201/2010 govern, among other matters, pre-contractual disclosure. This information must be provided in writing at least twenty working days before the contract or preliminary agreement is signed, or before any payment is made to the franchisor. Ask for any required guarantees to be clearly set out in the documentation you will review; this disclosure period is no substitute for a legal assessment of the guarantee.

3. Negotiate the amount, scope and duration

There is no general financial cap specifically applicable to personal guarantees for franchises. Protection must be secured through negotiation and precise drafting.

Propose the following terms before committing:

• An overall liability cap: clarify whether it includes principal, interest, contractual penalties and costs, so that the cap does not cover only part of your exposure.
• Clearly identified debts: avoid giving a blanket guarantee for all the company’s present and future obligations to the franchisor or other companies.
• A defined period: specify which debts are covered according to when they arise, and the deadline for making claims under the agreed terms and applicable law.
• Progressive reduction: propose that the guarantee reduces as financing is repaid or specified objective conditions are met.
• Control over extensions: ask for renewals, additional outlets or increases in credit not to extend your guarantee without your express consent.

Distinguish between the date after which no new obligations fall within the guarantee and the end of liability for earlier debts. Ending the franchise agreement does not necessarily extinguish liability for those debts.

4. Document your release

Do not assume that selling the company, changing its director or stepping away from management releases you from the guarantee. An agreement between shareholders does not, by itself, oblige the creditor to give up your guarantee either.

Agree which events will allow you to request a release, what documentation you must provide and who must approve it. If another guarantor is expected to replace you, specify the procedure: the replacement should not be treated as complete simply because someone else takes over the business.

Keep the signed document, any amendments and any cancellation or release issued by the creditor. For a bank guarantee, also check the cancellation conditions with the bank.

Practical takeaway: before giving a guarantee, insist on written answers to three questions: how much could you have to pay, for which obligations and until when? If any answer remains unclear, negotiate and seek an independent legal review before signing.