Buying a franchise: assessing the brand’s audit requirements

When joining a franchise network in Portugal, it is natural to accept checks designed to protect the brand’s quality and consistency. But a clause allowing the franchisor to ‘audit the business at any time’ deserves careful attention. Before buying, you need to understand what can be inspected, which documents must be provided, who pays and how findings can be challenged.

1. Understand the legal framework and the limits of an audit

Portugal has no specific franchise law and does not require a pre-contractual disclosure document with legally prescribed content. A franchise agreement is an ‘atypical’ contract, meaning it is not a specifically regulated contract type. It falls under the general rules of the Portuguese Civil Code, including freedom of contract under Article 405 and the duties of good faith during negotiations and performance under Articles 227 and 762.

This does not mean that any inspection power written into the agreement is automatically valid. Mandatory legal provisions still apply. Where standard contract terms have been drawn up without individual negotiation, Decree-Law No. 446/85 on standard contract terms must also be considered, particularly its requirements concerning communication and information, and its rules on prohibited clauses.

The European Code of Ethics for Franchising is a self-regulatory reference, not a Portuguese law that, in itself, gives the brand unlimited audit powers.

Ask for the full clause and the audit procedure before signing. A general reference to monitoring the network does not explain the scope of the obligations you will be taking on.

2. Define what can be checked and by whom

An operational audit may assess cleanliness, customer service, product presentation or compliance with procedures. A financial audit may examine accounting records and invoicing information. These are different types of review and should not be bundled together under an unrestricted authorisation.

Ask for written answers to these questions:

• Which premises, processes and documents are covered?
• Is the check carried out on site, remotely or through IT systems?
• Who can carry it out: the franchisor’s employees or external service providers?
• Is advance notice given? In what circumstances are unannounced visits permitted?
• How often are audits expected, and how long do they usually last?
• Can you accompany the auditor or have your accountant represent you?

Look for verifiable criteria linked to the obligations you have actually agreed to. Expressions such as ‘unsatisfactory quality’ need an assessment framework that makes it clear how that conclusion is reached.

An unannounced visit may make sense when assessing customer service under normal conditions. That does not remove the need for rules on identifying the auditor, securing the premises and limiting disruption to the outlet’s operations. Negotiate conditions that allow checks without unnecessarily bringing the business to a halt.

3. Limit access to data and anticipate the costs

Access to documents may involve customers’ or employees’ personal data. In these cases, the General Data Protection Regulation and Law No. 58/2019, which implements it in Portugal, apply. An audit clause in a contract does not, by itself, authorise the sharing of any and all personal data.

You need to identify the purpose, the lawful basis, the data strictly necessary and each party’s responsibilities. Wherever possible, aim to meet the audit requirements using aggregated or anonymised information. Also confirm who keeps copies, for how long and with what security measures.

If the franchisor uses an external organisation, clarify its confidentiality obligations and the conditions governing access. Avoid agreeing to indiscriminate sharing of login credentials or unrestricted access to systems without a demonstrated need.

For costs, ask for a clear distinction between routine audits, exceptional checks and follow-up visits to verify corrective action. The agreement should explain:

• Who pays for the auditor, travel and other expenses;
• In what circumstances costs are charged to the franchisee;
• How those amounts are calculated and what supporting documents are provided;
• Whether there are any caps or requirements for prior approval.

Also budget for staff time and any support from your accountant. Even an audit with no direct charge can consume significant resources.

4. Ensure there is a process for challenging the findings

Before signing, ask for an anonymised sample report and its accompanying assessment framework. This will help you understand whether the audit produces practical recommendations or merely ratings that are difficult to verify.

Negotiate a requirement for a written report setting out the facts observed, the criteria applied and the relevant documents. Allow for a period in which you can provide explanations, correct factual errors and submit evidence that was not considered.

If the findings could lead to charges or other contractual consequences, clarify how a review would work. One option is to provide for a second assessment by a different person or, for significant technical disagreements, by an independent specialist, agreeing in advance who will bear the cost.

Practical takeaway: before buying, make sure you can answer five questions: what is audited, by whom, with what access, at what cost and with what opportunity to respond. Take any ambiguities to a lawyer before signing, rather than waiting until the first inspection.