Spain: Draft law proposes compensation payment to
franchisees
18 October 2007
Things might be about to change for franchisors in Spain as a
legislative initiative dealing with distribution contracts is
currently being discussed. The first draft of the proposed
Distribution Law lays down ground rules for all types of
distribution including franchising. It will apply to all types of
franchising with the exception of "industrial franchising"
(essentially a franchise based on a patented process).
Although the Draft is still in its initial stages and not
expected to become law for some time, it currently proposes the
following key provisions which will have a serious impact on
franchisors:
- Termination: the Draft allows termination of franchise
agreements against payment of liquidated damages equal to two years
earnings.
- Goodwill indemnity: the Draft makes it clear that franchisees
will be entitled to the same indemnity payment as commercial
agents. Currently it is unclear whether franchisees and
distributors have the right to claim an indemnity. The Draft
seeks to remove this uncertainty. However, the right to claim
indemnity will be limited to specific circumstances.
- Under the Draft all amendments of franchise or distribution
contracts have to be in writing.
The provision in respect of the goodwill indemnity will have a
serious impact on franchising, and franchisors need to consider
lobbying the Spanish legislature against this proposed change.
For more information on franchising in Spain or the new draft
legislation, please contact Mark Abell or Babette Märzheuser-Wood.