Spain — Agency and distribution agreements

Agency agreements

Agency Agreements are regulated by the Agency Agreements Law 12/1992 (which has transposed Directive 86/653/EEC into Spanish law).

The main characteristic of the agency agreement is that through this an individual or a legal entity (the Agent) agrees with the Principal on a continuous or regular basis and against payment of a consideration to be agreed, to promote commercial acts or transactions for the account of such Principal not assuming the risk and hazard of such transactions, unless otherwise agreed.

Commercial relationship: Agents are independent intermediaries who do not act in their own name and behalf, but rather for and on behalf of one or more Principals.

There is no labour but commercial relationship between the Principal and the Agent.

It is presumed that the agency relationship is as a matter of fact. On the contrary, there is a labour relationship when the agent in not entitled to organize by his own his business activity nor to fix its own timetable.

Agents Obligations: Agents must, on his own or through his employees, negotiate and, if required by contract, conclude on behalf of the Principal, the business and transactions he is instructed to handle. Agents are subject to a number or obligations, including the following:

• An agent cannot outsource his activities unless expressly authorized to do so.
• An agent is authorized to negotiate agreements or transactions included in the agency agreements, but can only conclude them on behalf of its principal when expressly authorized to do so.
• An agent may act on behalf of several principals, unless the related goods or services are similar or identical, in which case express consent is required.

Main obligations of the Principal are:

• To act loyally and in good faith in its relations with the agent.
• To provide the agent with all the documentation and the information which he may need to develop his activity.
• To pay the agreed consideration.
• To accept or reject transactions proposed by the agent.

The agency agreement must always be remunerated/paid. The consideration may consist of a fixed amount, a commission or a combination of both.

Indemnity: the agent is entitled to:

1. A damages and prejudices indemnity if the contract is terminated by the Principal without cause (not to apply when the termination takes place at the end of the agreed Term).
2. A compensation for clientele/goodwill if the contract is terminated without cause or terminated through expiration of the agreed term provided the agent has contributed with new clients to the Principal business or increased the transactions with the Principal client portfolio and provided that the Principal can benefit in the future of such activity from the agent. Such compensation cannot exceed the average of the payments/commissions received by the agent throughout the last five years or throughout the contract effectiveness if the duration has been below five years.

Non Competition:  non-competition provisions (i.e., provisions restricting or limiting the activities that can be carried out by the agent once the agency agreement has been terminated) have a maximum duration of two years from the termination of the agency agreement and must be: agreed in writing, limited to the geographical area where the agent has been trading and related to goods or services object of the agency agreement.

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Distribution / Concession agreements

There is not a specific regulation for distribution agreements; therefore the Civil Code general contract regulation applies. Through this type of contract the Distributor undertakes toward the Principal – on a continuous or regular basis and against payment of a consideration to be agreed – to promote commercial acts or transactions for the account of such Principal, but assuming the risk and hazard of such transactions.

In practice, distribution agreements are often confused with agency agreements. Nevertheless, they are different and have distinct regulations and characteristics.

1. Under a distribution agreement, the distributor undertakes to purchase goods belonging to the other party for resale. While under the agency agreement the agent is paid a commission but not purchases and resales.
2. Under the distribution agreement the Distributor assumes the entire risk of the transaction while under the agency agreement the risk remains with the Principal.

Commercial relationship: under the distribution agreement the link is completely commercial; the risk of a labour relationship being declared is much lower than under the agency agreement due to the fact of the Distributor higher independency and autonomy.

The distribution agreement may be granted under an exclusive or non-exclusive basis. The exclusive may work on both sides: the distributor could be contractually liable to only work with the principal (or not) and the Principal could be contractually bound to only work with the distributor on a given territory.

Parties Obligations: while the Agency Agreement is governed through the Agency Agreements Law (which includes mandatory rules), Distribution Agreements are subject to the Civil Code and therefore the “freedom principle” applies in order to set forth the parties obligations regime.

The Distributor is not paid by the Principal. He makes his benefit through the difference between purchase and sale price.

Indemnity: although the clientele/goodwill indemnity only applies to the agency agreements, the Supreme Court has in various sentences decided that the Distributor could have the right to be paid such an indemnity provided similar provisions as those stated at the Agency Agreements law (see above) where met on an analogy basis.

Non Competition:  non-competition provisions (i.e., provisions restricting or limiting the activities that can be carried out by the distributor once the distributor agreement has been terminated) are valid provided that they are expressly agreed through the agreement and its reasonability can be defended and sustained (in terms of territory, term and consideration).

Commission agency agreements

Through this type of contract, the commission agent undertakes to perform or to participate in a commercial act or agreement on behalf of the Principal.

Commission agents may act:

• In their own name, acquiring rights against the contracting third parties and vice versa or
• On behalf of their principal, who acquires rights against third parties and vice versa

Obligations of commission agents:

1. To protect interests of the Principal as if they were their own and to perform their engagement personally. Commission agents may delegate their duties if authorized to do so and may use employees at their own liability.
2. To account for amount that they have received as commission, to reimburse any excess amount and to return any unsold merchandise.
3. Commission agents are barred from buying for their own account or for the account of others, without the consent of their principal, the goods that they have been instructed to buy.

Commission: The principal undertakes to pay a commission to the commission agent, usually linked and only accrued if the Transaction is closed.

Differences and similarities between agency agreements and commission agency agreements.

• Main similarity: In both cases, and individual or legal entity undertakes to pay another compensation for arranging a business opportunity for the former to conclude a legal transaction with a third party, or for acting as the former’s intermediary in concluding the transaction.
• Main difference: Agency agreements involve an engagement on a continuous or regular basis, whereas commission agency agreements involve occasional engagements.

Franchise Agreements

Franchise Agreements are governed through (i) the Law 7/1996, of January 15, regulations retail trade, regarding the basic conditions for the franchise activity and creating the Register of Franchisors; (ii) Royal Decree 201/2010, of February 26, regulating the exercise of the commercial activity under a franchise arrangement and the communication of information to the Register if Franchisors; and (iii) Royal Decree 378/2003, which refers to Regulations (EC) No. 2790/1999, of December 22, 1999, relating to the application of Article 81(3) of the Treaty to certain categories of vertical agreements. Through the Franchise Agreement the franchisor grants a right to, and imposes an obligation on, its individual franchisees, for a specific market, to pursue the business or commercial activity (sale of goods, services or technology) previously carried out by the Franchisor with sufficient experience and success, using the knowhow, system, trademarks, IP rights etc. defined by the Franchisor.

The Franchise Agreement entitles and obliges the Franchisee to use the brand name and/or trade or service mark for the goods and/or services, the know-how and the technical and business methods, which must be specific to the business, material and unique, the procedures and other intellectual property rights of the Franchisor, backed by the ongoing provision of commercial and technical assistance under, and during the term of, the relevant franchising agreement between the parties, all of the above regardless of any supervisory powers conferred on the Franchisor by contract.

Formalities: In Spain, prior to start franchising activities, Franchisors must register in a public administrative Register of Franchisors.

Although the very short regulation of the Franchise Agreement leaves ground for the freedom principle, usually the franchisee pays a royalty to the Franchisor (commonly linked to the volume of sales but could also be a fix royalty), and a publicity royalty (so as to contribute to the Principal publicity cost of which the franchisee benefits).

Non Competition: throughout the life of the agreement, non-competition clauses (reciprocally) are common and admissible; after the termination of the contract, the Spanish Court usually admits the validity of the one year non-competition clause but limited to the location where the franchise had been working.