Contract length when franchising a business in Spain

When turning an existing business into a franchise, you should not choose the contract length simply by copying another brand. The term determines how long the franchisee can operate the business model and how long the franchisor must support them. To build a stable franchise network, the term should be backed by evidence and fit with the business’s other commitments.

1. Distinguish between legal requirements and decisions you need to make

In Spain, the franchise-specific legal framework includes Article 62 of Law 7/1996 on the Regulation of Retail Trade and Royal Decree 201/2010 of 26 February. These provisions do not set a general minimum term for franchise agreements. There is therefore no number of years that can be presented as mandatory for every business model.

Royal Decree 201/2010 does, however, require disclosure of the agreement’s essential terms, including its duration and, where applicable, renewal conditions. Pre-contractual information must be provided in writing at least twenty working days before the contract or preliminary agreement is signed, or before the prospective franchisee makes any payment to the franchisor.

The term must be defined before the franchisee joins, rather than left for a later conversation. Alongside franchise-specific regulation, general contract law and competition rules also apply. The fact that both parties agree to a term does not automatically make every restriction attached to it valid.

2. Base the term on the business model’s financial realities

Start by understanding the commitments a new franchisee will take on. This is not about recalculating the entire initial investment, but about checking whether the time allowed to operate the business is reasonable in relation to those commitments.

Prepare an internal summary covering four areas:

• Expenditure that is difficult to recover: building work, bespoke fit-outs or equipment with little value outside the franchise concept.
• Start-up period: the time it has taken in practice to reach a relatively stable level of trading, allowing for seasonality.
• Expected replacements: equipment or branding elements that may need replacing during the term.
• Financial obligations: loan repayment schedules or equipment lease terms that the prospective franchisee needs to assess.

Test the proposed term against different operating scenarios, using verifiable results and clearly stated assumptions. A favourable scenario alone cannot justify a term that leaves very little room for delays or lower-than-expected sales.

This exercise does not guarantee that the franchisee will recover their investment. It helps identify mismatches before you offer the agreement. If the model only appears viable on the assumption of a future renewal, rethink your approach: an expectation of continuing is not the same as a contractual right to keep operating.

3. Align the agreement with the dates that determine whether the business can operate

A seemingly suitable term may be of little use if another essential right expires sooner. Draw up a combined timeline, even if the documents are signed by different parties.

Pay particular attention to:

• The premises lease: identify its expiry date and distinguish between agreed extensions and those requiring fresh negotiations.
• Trade mark rights: if the franchisor operates under a licence, check that it can grant use of the trade mark for the full term offered and on the intended conditions.
• Essential equipment and tools: check how long these will remain available where they depend on third-party contracts.
• Agreements needed to deliver the service: identify expiry dates that could interrupt an indispensable part of the business model.

The documents do not all need to have exactly the same duration. However, there must be a workable solution to every mismatch. For example, if the lease expires before the franchise agreement, simply expecting to negotiate with the landlord does not remove the risk.

Record each mismatch, who is responsible for resolving it and what checks are needed before making binding commitments.

4. Define when the term starts

Signing the agreement, taking possession of the premises and opening for business may happen on different dates. The agreement must specify which event brings it into effect and, where relevant, which event starts the operating period.

If the term starts on signing, delays to building work may use up some of the available trading time. If it starts on opening, define how that date will be evidenced and what happens if the business never opens. Avoid vague wording such as ‘from the start of business activity’ without further clarification.

Arrange a legal review to align these dates with the payment schedule and both parties’ obligations. Sales materials, pre-contractual documents and the agreement must all describe the same term, without verbal promises of additional years.

Practical conclusion: before offering your first franchise, prepare a summary setting out the proposed term, its financial rationale, the start date and related expiry dates. If any essential element depends on an uncertain renewal, resolve that mismatch before presenting the term as final.