Buying a franchise: assessing a lease in Portugal

A location may look perfect yet still jeopardise your franchise investment. If the premises cannot legally accommodate the business, require unexpected building work or become unavailable before the franchise agreement ends, your investment is at risk. In franchising, the franchisor’s commercial approval of a site is no substitute for legal and technical checks on the property.

1. Confirm who can make the premises available

Before making any commitments, establish who the landlord will be and who will sign as tenant. You might lease directly from the owner, sublet from the franchisor or use a space within another business’s premises. These arrangements do not necessarily offer the same security.

Ask for an up-to-date land registry certificate and check the identity and authority of the person signing. If you are taking a sublease, request the head lease and check the necessary consent, its term and what happens if it ends. Do not accept a right to use the premises that looks stronger on paper than the rights the intermediary actually holds.

Portugal has no specific franchising law or compulsory register specifically for franchisors or franchisees. The relationship is based, among other things, on the freedom of contract provided for in Article 405 of the Portuguese Civil Code and the duties of good faith under Articles 227 and 762. Non-residential leases are governed by the Civil Code and the framework of the New Urban Lease Regime (Novo Regime do Arrendamento Urbano), approved by Law No. 6/2006, as amended.

These are separate legal relationships: the brand’s permission to open an outlet does not, in itself, give you any rights over the property. Have a lawyer review both agreements together.

2. Check whether the property can legally accommodate the business

The fact that a shop previously operated there does not prove that the premises are suitable for your concept. A different activity may bring new requirements relating to permitted use, accessibility, fire safety, ventilation or toilet facilities.

Request the available planning and building documentation and, with technical support, check with the local council whether your intended use is permitted and which procedures apply. Requirements vary according to the activity, the property and the proposed work; there is no single licence that covers every situation.

Before approving the location, check:

• Use and business activity: whether the legally permitted use allows your business to operate and which authorisations or notifications will be required.
• Technical conditions: electrical capacity, water supply, drainage, extraction and the capacity of existing systems.
• Building work and branding: whether you can install shopfront features, signage, external equipment or ducting.
• Condominium arrangements: the document establishing the building’s separately owned units and common areas, the condominium rules and any resolutions relevant to work on shared parts of the building.

Obtain any necessary landlord consents for the work in writing. Where approval from the condominium owners’ association or a public authority is also required, the owner’s signature is not a substitute.

Ask the franchisor to approve the specific fit-out plans, not just the address. A commercially approved site may need alterations that are beyond your budget.

3. Align terms, conditions and responsibilities

Compare the start dates and terms of the lease and the franchise agreement. If you start paying rent long before you can open, you will be funding premises that generate no revenue. If the lease ends first, you could lose the location while still having obligations to the brand.

Draw up a timeline covering handover of the premises, approvals, building work, equipment installation and opening. Identify who is responsible for each stage and what happens if there are delays.

Where possible, negotiate written provisions that make your commitments conditional on the project’s viability. These might include conditions precedent linked to essential approvals, deadlines for obtaining them and clear rules on refunds. A lawyer should tailor the wording: simply writing ‘subject to licensing’ may leave important questions unanswered.

Also clarify:

• Who pays for structural repairs and pre-existing defects.
• When rent becomes payable and whether there is a rent-free period for building work.
• Who owns fixtures and installations incorporated into the property.
• What reinstatement work will be required when you return the premises.

Do not assume that ending one agreement automatically allows you to end the other. Any links between the two must be specifically examined and negotiated.

4. Calculate the true cost of occupying the premises

Compare premises on the basis of total costs, not just the advertised rent. Include the deposit, rent paid in advance, charges you agree to bear under the lease, insurance, technical design work, building work and maintenance. Separate recoverable amounts, such as a deposit refundable on the agreed terms, from non-recoverable expenditure.

Confirm the applicable tax treatment with your accountant rather than assuming that all rent payments or expenses receive the same VAT treatment. Obtain itemised quotations and set aside a contingency for potential issues identified during the technical inspection.

Practical conclusion: before signing, gather the property documentation, a technical assessment, the fit-out budget and both agreements. Proceed only when you are clear that you can use the premises for your business, for the period you need and with financial responsibilities you can afford.