John Cleese himself named this as "the least good" of the episodes that were filmed, owing to a general lack of laughter in the studio on recording day. He recalls that members of the Icelandic Broadcasting Corporation were visiting the studio that day and many of them were in the front row seats, apparently not entirely amused.
The basis for this episode came when John Cleese saw Donald Sinclair, the basis for Basil Fawlty, yell at some builders on their tea break because he thought they were skiving (slacking off). By a bizarre coincidence, Sinclair died (several years later) after suffering a heart attack when he discovered that another group of builders had taken revenge on him for berating them by painting his car gunmetal gray in the middle of the night.
The man who delivers the garden gnome to Fawlty Towers asks Manuel where the "Generalissimo" (his boss) is, to which Manuel (believing that he is talking about Francisco Franco, commander of the Spanish Army) responds "in Madrid!" This episode aired less than two months before Franco's death. In the Catalan version, broadcast in 1986 (eleven years after Franco's death), Manuel replied "Dead!"
Basil tells his guests that they must go to "The Gleneagles" for their dinners. This is a reference to the Hotel Gleneagles which Donald Sinclair, the hotel manager on which John Cleese based Basil Fawlty, ran in Torquay, the town where Fawlty Towers is set.
The sign reads "Fawlty Towers" with the "l" tilted.