Franchise breaches: how to agree a process for putting things right

Before franchising your business in Spain, it is worth deciding what will happen if either party fails to meet its commitments. Not every mistake warrants the same response: submitting documents late is not the same as a practice that puts customer safety at risk. Establishing a process for putting things right helps protect the brand and build a franchise network with clear rules for both parties.

1. Define obligations that can be verified

A clause requiring a party to ‘maintain the highest quality at all times’ expresses an aspiration, but offers little guidance for resolving a disagreement. Turn each important obligation into a verifiable commitment: what must be done, who is responsible, how compliance is demonstrated and when the obligation is considered fulfilled.

For example, if the franchisee must report an incident affecting service, specify the reporting channel, the information required and the applicable deadline. If the franchisor must provide operational materials, be equally specific about their delivery and content.

Prepare a working table with four columns:

• Obligation: the conduct or outcome required by the agreement.
• Evidence: a document, record or fact that allows compliance to be verified.
• Impact: the consequences for customers, the brand and business operations.
• Remedy: the action needed to restore compliance.

Include the franchisor’s obligations, not just those of the franchisee. Promised support is also part of the contractual relationship. A one-sided system that penalises delays at the outlet but ignores those of the franchisor is likely to encourage disagreements.

2. Align the process with Spain’s legal framework

Spain has specific legislation governing franchising: Article 62 of Law 7/1996 on the Regulation of Retail Trade and Royal Decree 201/2010. The latter identifies the transfer of know-how and ongoing commercial or technical assistance throughout the agreement’s term as elements of a franchise.

These rules do not set out a general list of breaches or a single deadline for remedying them. The parties must agree the process in accordance with applicable legislation and the general rules of the Spanish Civil Code on contracts, performance and good faith.

Royal Decree 201/2010 also requires written, truthful and non-misleading pre-contractual information to be provided at least twenty working days before the contract or preliminary agreement is signed, or before the prospective franchisee makes any payment to the franchisor. This information must cover the essential elements of the agreement, including both parties’ rights and obligations.

Do not, therefore, present a flexible business model and then wait until signing to introduce a penalty regime that substantially changes what was presented. Have the pre-contractual information, contract and schedules reviewed together to avoid inconsistencies.

3. Establish a notice and remedy process

The initial aim should be to restore compliance wherever possible. Design a straightforward sequence that can be followed without improvisation:

1. Specific notice. Describe what happened, the obligation concerned and the available evidence. Avoid vague allegations.
2. Response from the other party. Allow them to explain what happened and provide supporting documents. An incident may have resulted from contradictory instructions from the franchisor itself.
3. Corrective action plan. Set out the actions required, the person responsible and the review date.
4. Verification and closure. Record whether the problem has been resolved or what action remains outstanding.

Do not automatically apply the same deadline to every issue. Correcting an administrative detail and replacing equipment require different actions. Time limits should be realistic and consistent with the level of risk.

Also distinguish between remedying a breach and containing an immediate danger. A health or safety risk may require urgent measures under the applicable rules, without waiting for the standard process to run its course.

Define what counts as a repeated breach and the period over which repetition is assessed. Without that clarity, small, unrelated mistakes may end up being treated as persistent conduct without a clear basis.

4. Review contractual penalties before using them

A contractual penalty should not operate as an improvised fine imposed by the franchisor. If you decide to include one, specify precisely which breach triggers it, its amount or calculation method, and how it relates to other contractual consequences.

Article 1152 of the Spanish Civil Code provides that, unless otherwise agreed, the penalty replaces compensation for loss and the payment of interest arising from the breach. Do not therefore assume that you can always claim both a penalty and damages.

Article 1154 allows a court to adjust a penalty where the main obligation has been performed in part or imperfectly. Its application requires a case-specific assessment: it does not mean that every substantial penalty will automatically be reduced.

Before finalising the contract, test the process against real incidents from your business and seek a legal review. Practical takeaway: put in writing what is required, how notice is given and how breaches are remedied. A good process should help parties meet their obligations, not turn every mistake into a dispute.