Buying a franchise: assessing the territory in Portugal

When buying a franchise in Portugal, it is not enough to ask whether territorial exclusivity is available. You need to understand who can sell in the same area, through which channels and under what circumstances that protection could be lost. Within a franchise network, clear territorial rules help prevent disputes and assess whether the investment makes sense. This guide explains how to examine this part of the proposal before choosing a brand.

1. Turn the promise of exclusivity into a map

Terms such as ‘protected area’ or ‘exclusivity within the municipality’ can mean different things. The protection may only prevent another franchised outlet from opening, leaving the franchisor free to operate its own outlets, sell online or enter into agreements with major customers.

Ask for the boundaries to be set out in writing, with a map attached to the contract. If postcodes are used, check the complete list. If the territory is defined by a radius around the outlet, clarify how it is measured. Also identify locations subject to special treatment, such as shopping centres, airports or stations.

The proposal should answer four questions:

• Who is restricted? The franchisor, other franchisees and companies within the same group?
• Which activities are covered? Physical outlets, deliveries, services in customers’ homes and sales prospecting?
• What are the exceptions? National accounts, e-commerce or particular outlet formats?
• How long does the protection last? For the full contract term or only an initial period?

Do not confuse location exclusivity with customer exclusivity. Being the brand’s only outlet in an area does not mean you will receive all sales to people living there.

2. Test the commercial potential, not just the size

A large territory may offer little accessible demand. A small area may have a high concentration of customers but also high rents and intense competition. The aim is to weigh likely demand against the outlet’s actual costs.

Gather information on the resident and daytime populations, access, parking, competitors and seasonality. Use public data, site visits at different times and direct observation. For business-to-business services, assess the number of potential customers who actually meet the relevant criteria, rather than simply counting all registered businesses.

Ask the franchisor for the assumptions behind the proposed territory. If they present results from other outlets, check whether these are comparable in terms of location, how long they have been operating, size and sales channels. An established outlet in a tourist area does not, on its own, demonstrate the potential of a new outlet in a residential neighbourhood.

Work with your accountant to prepare three scenarios: cautious, base case and optimistic. For each, estimate sales, margins, delivery or travel costs, rent, staffing and payments to the franchise network. Allow for the possibility that some demand will be met through channels that generate no income for your outlet.

A territory only has economic value if it supports a sustainable operation, rather than merely an attractive turnover forecast.

3. Understand the legal limits of territorial protection

Portugal has no specific franchise law, nor does it require a pre-contractual disclosure document with legally prescribed content for this business model. This does not remove the duties to provide information and act in good faith during negotiations.

Relevant legislation includes the Portuguese Civil Code, notably freedom of contract under Article 405 and pre-contractual liability under Article 227. Where standard contract terms are used, Decree-Law No. 446/85 imposes duties to communicate those terms and provide information, among other requirements. A standard territorial clause is not exempt from these duties simply because it appears in an annex.

Territorial restrictions are also subject to competition rules, notably Law No. 19/2012 and, where applicable, Article 101 of the Treaty on the Functioning of the European Union. Regulation (EU) 2022/720 provides a block exemption for certain vertical agreements, subject to conditions.

It is important to distinguish between active sales, such as campaigns specifically targeting an area, and passive sales, such as responding to unsolicited customer enquiries. The scope for restricting each type differs. An outright ban on selling outside the territory or making effective use of the internet may raise competition law concerns.

The European Code of Ethics for Franchising is a self-regulatory reference, not a Portuguese law that automatically applies to everyone. Ask a lawyer to assess the specific clause: the word ‘exclusive’ does not guarantee that every restriction is valid.

4. Negotiate channels, targets and consequences

Before signing, clarify how orders received through the brand’s website, apps or a central telephone service are allocated. Who invoices the customer? Who delivers? Who bears the cost of returns? Is there payment for supporting customers who have bought through another channel?

Also check whether exclusivity depends on minimum performance targets. Targets should have verifiable criteria, defined assessment periods and clear consequences. Seek to negotiate advance notice and an opportunity to remedy any failure before losing protection.

Finally, ask for the contract to address the opening of nearby outlets, changes to territorial boundaries, dispute resolution and the consequences of a breach by the franchisor. Do not assume you can suspend payments or terminate the contract without legal advice.

Practical conclusion: proceed only when three elements align: a clear contractual map, explicit rules for every sales channel and prudent financial projections that support the investment.