Buying a franchise: assessing the confidentiality agreement

Before sharing its working methods, commercial data or part of its operations manual, a brand may ask you to sign a confidentiality agreement. Protecting confidential information is legitimate in franchising. However, this document should neither prevent an independent assessment of the investment nor conceal commitments to buy. Your first priority is to understand exactly what you are agreeing to do, even if you never open the outlet.

1. Understand what you are actually signing

A confidentiality agreement limits the use and disclosure of specified information. It should not be confused with a franchise agreement, a territory reservation or a commitment to join the brand’s network.

Read the entire document and look for obligations that go beyond that purpose. A ban on contacting other brands, an obligation to pay if you withdraw from negotiations or a restriction on your future business activities warrants separate scrutiny. The document’s title does not, on its own, determine the scope of your obligations.

Also check who is bound by the agreement: you as an individual applicant, an existing company or both. If you have not yet incorporated the company that will run the business, do not assume that obligations you take on personally will automatically transfer to that company.

Ask for the purpose to be stated explicitly: assessing whether to join the network. It is also worth clarifying that receiving information does not oblige either party to enter into the final agreement.

2. Define the protected information and the exceptions

An overly broad definition, such as ‘everything relating to the brand’, makes it difficult to understand what you can use or discuss. Identify the relevant categories: operating procedures, non-public commercial terms, financial documents, contact lists or technical information.

If there are oral presentations, ask how confidential content will be identified. One option to negotiate is subsequent written confirmation of the information covered by the confidentiality obligation.

The agreement should include clear exceptions for information that:

• Was already public when disclosed, or became public without a breach of the agreement;
• Was already lawfully in your possession;
• Was lawfully received from a third party without a duty of confidentiality;
• Was developed independently, without using the information received.

These exceptions should be backed by practical precautions: keep dated documents that can establish where the information came from.

Make sure you can share the necessary information with your lawyer, accountant and, where appropriate, lender. Such sharing may be restricted to assessing the project and made subject to confidentiality obligations. A document requiring permission for every contact with a professional adviser could delay or undermine your assessment.

3. Understand the legal framework in Portugal

Portugal has no specific franchising law and does not require a pre-contractual disclosure document with legally prescribed content. This does not mean that negotiations take place without rules.

The principles of the Portuguese Civil Code apply, notably freedom of contract under Article 405, good faith in negotiations under Article 227, and good faith in the performance of obligations under Article 762. The freedom to set the terms of a confidentiality agreement therefore has legal limits.

Where the document contains standard contractual terms prepared in advance without individual negotiation, Decree-Law No. 446/85 may apply, including its rules on communicating terms, providing information and prohibited clauses. Do not assume that a provision is valid simply because it appears in the brand’s standard form.

The Portuguese Industrial Property Code also protects trade secrets that meet the legal requirements. Not all information labelled ‘confidential’ automatically qualifies as a trade secret, although it may benefit from contractual protection.

Also ask for an exception covering legally required disclosures, particularly to authorities or courts. Any procedure for notifying the franchisor, where permitted, should not prevent you from complying with a legal obligation.

4. Prepare for the end of negotiations

Define the term of the agreement and how long the duty of confidentiality will continue. There is no single period suitable for every type of information: methods that remain secret and commercial information that quickly becomes outdated may warrant different treatment.

Clarify what happens to the documents if you decide not to proceed. Return or deletion requirements should cover digital copies, messages and shared files. Negotiate limited exceptions for retaining information where legally necessary or to defend your rights, while maintaining its confidentiality.

Also check whether the agreement protects information about you, such as your assets, financial capacity or business plans, when you share it with the brand. Protection may need to be mutual.

In practice: before signing, confirm three things: you can consult your advisers, you can withdraw from the purchase without taking on hidden commercial obligations, and you know what you must keep or delete. Only then should you receive the confidential documents.