Franchise Preliminary Agreements in Spain: Reservations and Refunds

When franchising an existing business, a suitable candidate may come forward before financing or the search for premises has been finalised. A preliminary agreement can help manage this waiting period, but it also creates obligations. To build a franchise network with clear relationships, define what is being reserved, what needs to happen before you can proceed and what will happen to the money if the final agreement is never signed.

1. Decide whether you need a reservation or a commitment to enter into a contract

Do not use a preliminary agreement simply to demonstrate that the candidate is ‘serious’. First, identify the problem you need to solve: temporarily taking a territory off the market, allowing time to secure financing or coordinating steps before the candidate joins the network.

The document’s title does not, by itself, determine its legal effect. A ‘reservation application’ may contain binding commitments if it sets out specific obligations. Nor should you assume that a preliminary agreement allows either party to walk away without consequences.

Distinguish between negotiations that remain open, a temporary reservation and a commitment to enter into the final agreement once certain conditions are met. Ask a legal professional to draft a document that reflects your actual intentions.

Before preparing the document, answer these questions in writing:

• What will the franchisor offer during the waiting period, and what will it stop offering to other candidates?
• What steps must each party take?
• Which matters remain to be agreed?
• Is there an obligation to sign if the specified conditions are met?

Do not present a territory as available if it has already been committed to someone else. If the reservation is limited to a specific location, avoid wording that could be interpreted as granting broader territorial exclusivity.

2. Observe the statutory waiting period before signing or taking payment

In Spain, the specific legal framework includes Article 62 of Law 7/1996 on the Regulation of Retail Trade and Royal Decree 201/2010 of 26 February. The general rules on obligations and contracts under the Spanish Civil Code also apply.

The Royal Decree requires truthful, non-misleading pre-contractual information to be provided in writing at least twenty working days before the franchise agreement or preliminary franchise agreement is signed, or before the prospective franchisee makes any payment to the franchisor.

It is therefore not enough to provide the documentation twenty days before the final agreement if a preliminary agreement has already been signed or a reservation payment taken. Calling the payment a ‘refundable deposit’ does not remove this obligation.

Organise the process so that you can prove when the information was delivered and ensure that the signing or payment date respects the waiting period. Keep the version supplied and proof of receipt; seek clarification rather than guessing how to calculate the period if there is any uncertainty about non-working days.

The reservation must be consistent with the information provided about payments, rights and obligations. If material terms change during negotiations, update the documentation and obtain legal advice on how the change affects the process before proceeding.

3. Define how the money will be used and when it will be refunded

There is no standard reservation amount, and it should not automatically be treated as the initial franchise fee. Explain the purpose of the payment and whether, when the final agreement is signed, all or part of it will be credited against any outstanding amount.

Avoid a blanket ‘non-refundable reservation’ clause that treats every situation in the same way. Distinguish between at least the following scenarios:

• The candidate decides to withdraw without a reason covered by the agreement.
• Financing is not secured despite the agreed steps having been taken.
• No premises meeting the requirements are found within the agreed period.
• The franchisor decides not to proceed or cannot provide what it has committed to offer.
• Both parties agree to end negotiations.

For each scenario, specify whether the payment will be refunded in full, refunded in part or retained, on what grounds and within what timeframe. If expenses are to be deducted, define in advance which are allowable, how they must be evidenced and what limit applies. Do not turn the franchisor’s routine business costs into unexpected charges for the candidate.

The retention of payments and any potential penalties require legal review: simply including them in the agreement does not guarantee that they will be enforceable in every circumstance.

4. Set an end date and verifiable conditions

An open-ended reservation can hold up expansion and leave the candidate facing unnecessary uncertainty. Set an expiry date and establish how any extension must be agreed, avoiding informal renewals through conflicting messages.

Make outstanding conditions objectively verifiable. ‘Securing financing’ is less precise than specifying what evidence will be accepted and when it must be provided. Similarly, approval of premises requires clear criteria, a designated decision-maker and a deadline for responding.

Make clear that a reservation does not, in itself, authorise the candidate to use the brand publicly, open the business or present themselves as an operating franchisee. At the end of the process, document either the signing of the final agreement or the closure of negotiations, including the settlement of any amounts due and the release of the reservation.

Practical takeaway: before accepting a reservation, settle four questions: what commitments it creates, how long it lasts, which conditions allow the process to move forward and how the money will be refunded or applied.