How to agree exit terms in a franchise contract in Spain

When franchising an existing business, it is worth preparing not only for new partners joining, but also for their departure. A franchise network needs clear rules for when a relationship ends. Setting those rules before signing the first contract reduces disputes, protects continuity of service and helps you calculate obligations that are often overlooked at the outset.

1. Distinguish between expiry, termination for breach and early exit

Not every exit has the same cause. The contract should distinguish between three situations and specify the consequences of each:

• Expiry: the agreed term ends and the contract is not renewed.
• Termination for breach: one party seeks to end the relationship because the other has breached significant obligations.
• Agreed early exit: the parties agree to end the contract before it expires, or one party exercises an expressly agreed right to withdraw.

Define how notice must be given in each case, who must receive it and which method provides proof of its contents and receipt. If renewal is automatic, specify the notice period required to prevent it. Do not assume that ceasing trading or handing over the keys automatically brings contractual obligations to an end.

The initial term should be assessed alongside the required investment and the lease terms. This does not amount to guaranteeing a return on investment, but it avoids creating incompatible commitments from the outset.

2. Place the clauses within the Spanish legal framework

Spain has specific legislation governing franchising: Article 62 of Law 7/1996 on the Regulation of Retail Trade and the provisions of Royal Decree 201/2010 that remain in force. However, these rules do not provide a comprehensive framework for ending franchise contracts; the general rules of the Spanish Civil Code on obligations, contracts and breach are also relevant.

The essential elements of the agreement must appear in the pre-contractual information. Royal Decree 201/2010 requires this information to be supplied in writing at least 20 working days before a contract or preliminary agreement is signed, or any payment is received from the prospective franchisee. These elements include the duration and the conditions for termination and renewal. Do not leave exit terms as a surprise in the final version of the contract.

Royal Decree-Law 20/2018 also abolished the national requirement to notify the Franchisors Register. The validity of the contract does not depend on registration in that former register.

Have the exit clauses reviewed by a legal adviser in light of the particular circumstances. A written penalty clause is not automatically enforceable in every situation, nor should you assume that every termination gives rise to compensation for goodwill.

3. Define breaches and opportunities to remedy them

Avoid wording that allows termination for any minor deviation. Identify essential obligations and distinguish between breaches that can be remedied and those whose seriousness might justify an immediate response, always taking account of the circumstances and applicable law.

For example, a delay in providing documents does not pose the same risk as deliberately using unsafe products or disclosing confidential information. For breaches that can be remedied, establish a procedure covering:

1. Notification of the breach and the obligation concerned.
2. Supporting documentation to substantiate it.
3. A suitable period to remedy the breach, reflecting its nature.
4. Verification that the breach has been remedied and communication of the outcome.

The procedure should also cover breaches by the franchisor. A franchise network rests on mutual commitments, not solely on mechanisms for controlling the franchisee.

If you agree contractual penalties, explain what triggers them and how they are calculated. Clarify their relationship with any claim for damages to avoid ambiguity over double recovery.

4. Prepare the operational handover and financial settlement

Turn termination into a checklist of actions, with named responsibilities and deadlines. Include signage, uniforms, advertising materials, IT access, digital profiles and the return or destruction of confidential documents. Distinguish between assets owned by the franchisee and those used under a licence.

Address stock as well: do not assume there is a compulsory buyback. If you offer one, specify eligible products, their condition, expiry dates, valuation and transport arrangements. Any subsequent sale of branded products requires specific contractual and legal consideration.

Prepare a financial settlement that can be verified: outstanding invoices, accrued fees, advance payments, deposits and guarantees. Specify when these will be settled and what supporting documents will be provided.

Finally, allocate responsibility for outstanding orders, vouchers, complaints and services yet to be delivered. The exit should not leave customers unsure whom to contact.

5. Set proportionate post-termination obligations

Confidentiality and the protection of know-how require proportionate rules. Do not confuse these obligations with a general ban on continuing to work.

Post-termination non-compete obligations should be reviewed under Spanish and EU competition law. Regulation (EU) 2022/720 sets strict conditions for their exemption, including a one-year limit; meeting that time limit alone is not enough.

Personal data does not automatically transfer to the franchisor either. Under the GDPR and Spain’s Organic Law 3/2018, you will need to establish responsibilities, the legal basis, the information to be provided to those affected, and the appropriate retention or deletion arrangements.

Practical conclusion: before franchising, run through a complete exit scenario. If you cannot specify who does what, when and at what cost, the contract still needs work.