Buying a franchise: assessing territorial exclusivity

When buying a franchise in Portugal, the promise of an ‘exclusive territory’ can carry considerable weight in your decision. But that phrase alone does not explain who can sell, through which channels or for how long. Within a franchise network, clear territorial rules help prevent disputes between the brand and its franchisees. Before investing, turn the sales promise into concrete protection that you can verify.

1. Distinguish an operating area from an exclusive territory

An operating area may simply be the area where you are authorised to establish your outlet or provide services. It does not necessarily prevent the franchisor from opening another outlet, appointing another franchisee or selling directly to the same customers.

Exclusivity depends on what is actually agreed. Start by asking what commitment the brand is making: not to open company-owned outlets, not to grant new franchises, not to solicit certain customers, or some combination of these restrictions.

Ask for clearly defined boundaries. These could be set out on a map, by postcode or by administrative boundaries, provided the method makes it possible to establish whether a particular address falls within the territory. Expressions such as ‘surrounding area’ or ‘catchment area’ leave too much room for differing interpretations.

Also check:

• Whether the protection covers all the brand’s formats or only one type of outlet;
• Whether there are existing outlets, customers or previously granted rights within the area;
• Whether exclusivity begins when you sign or only when you open;
• Whether relocating your premises changes the protected territory.

Do not confuse exclusivity with a preferential right, either. A preferential right over a future outlet may allow you to make or accept an offer, but it is not the same as preventing that outlet from opening.

2. Identify the channels and customers excluded from protection

A seemingly protected territory may allow for several exceptions. The brand may reserve the right to sell through its online shop, enter into contracts with large companies, operate through delivery platforms or open premises in shopping centres. The important thing is to understand these reservations before assessing the value of the protection.

Ask for a list of exceptions and test practical scenarios. If a customer whose address is in your area places an order on the brand’s website, who gets the sale? Who handles delivery, after-sales support and any returns? Does the local outlet receive any payment when it carries out part of the service?

For business-to-business operations, clarify how customers with multiple sites are handled. Their head office may be outside the territory while the service is delivered within it. Without clear criteria, two outlets may both consider themselves entitled to the same account.

Prepare a simple table with four columns: sales channel, party responsible for the sale, party responsible for fulfilment, and applicable remuneration. Include only scenarios relevant to your chosen business model.

Territorial protection does not mean guaranteed revenue. Even if the brand respects your exclusivity, you will still face external competitors, and customers remain free to choose other suppliers.

3. Understand the legal limits in Portugal

Portugal has no specific franchise law, dedicated register of franchisors or pre-contractual disclosure document with legally prescribed content. Nor does the law automatically grant franchisees territorial exclusivity.

The legal framework rests on general rules, including the Portuguese Civil Code. Article 405 establishes freedom of contract within legal limits; Articles 227 and 762 impose duties of good faith during negotiations and in the performance of obligations respectively.

Where standard contract terms are used, Decree-Law No. 446/85, as amended, applies where relevant. This legislation imposes duties to communicate terms and provide information, which are important for understanding both the promised protection and its exceptions.

Territorial restrictions may also be subject to Portuguese and European Union competition law. Relevant legislation includes Law No. 19/2012 and, where applicable, Regulation (EU) 2022/720 on certain categories of vertical agreements. The rules distinguish, among other things, between active and passive sales; an absolute ban on responding to unsolicited enquiries from customers in other areas may raise legal issues.

So do not simply seek the most restrictive clause. Ask a lawyer to assess whether the protection you want is legally valid and appropriate for the business model.

4. Check how the protection can change

Read the conditions that allow exclusivity to be reduced, suspended or withdrawn. If it depends on sales or performance targets, confirm what those targets are, how they are measured and what happens before any territorial change is made.

Ask whether the franchisor can redraw territories unilaterally. Look for objective criteria, advance notice and a procedure for discussing overlaps. Protection that can disappear at the franchisor’s sole discretion deserves particular scrutiny.

Also clarify how to report a possible breach: what evidence to provide, who reviews the complaint and how an opening or sale that breaches the agreement will be handled. Do not assume you can decide to suspend payments yourself.

Practical conclusion: before signing, make sure you can answer four questions: what is my territory, what activities am I protected against, what exceptions apply, and under what conditions can that protection change?