Buying a franchise: planning for mandatory refurbishments

Investment in a franchise outlet does not end when it opens. New branding, replacement equipment or system upgrades may require additional capital during the term of the agreement. When entering the Portuguese franchise market, it is important to understand not only the start-up costs, but also what further investment may be required and how much notice you will receive. This guide focuses on mandatory refurbishments and how to assess them before signing.

1. Identify future investment obligations

Ask the franchisor to identify every provision in the agreement and its appendices that allows them to require building work, replacements or upgrades. Do not look only for the word ‘refurbishment’: phrases such as ‘alignment with the network’s brand image’, ‘modernisation of the premises’ or ‘compliance with technical standards’ may also involve significant expenditure.

Distinguish between three situations: routine maintenance, replacement due to wear and tear, and refurbishment imposed by the brand. Repairing a fault is not the same as replacing functional furniture to match a new visual concept. This distinction helps clarify who decides and how the budget is calculated.

Request written answers to the following questions:

• Are any refurbishments already planned that could affect your future outlet?
• Is there a set schedule, or can a refurbishment be required at any time?
• Does the obligation cover décor, the frontage, equipment and IT systems?
• Who decides whether an upgrade is necessary and what it should involve?
• Is a newly opened outlet exempt for an initial period?

Ask for documented examples of previous refurbishments, including descriptions of the work and the costs covered. Use these to understand the process, not as a guarantee of what your own outlet will cost.

2. Calculate the full cost, including disruption

The building work is only part of the expense. A refurbishment may require design work, dismantling, transport, storage, installation, testing and training on new equipment. Also check whether the figures provided include taxes, and ask your accountant to assess the relevant tax treatment.

Factor in the impact on trading. If the outlet has to close, rent, wages and other payments may continue while sales stop. Even without a full closure, noise, restricted access or reduced service capacity can affect revenue.

Prepare a spreadsheet with four sections:

• Physical works: materials, labour, installation and technical fees.
• Operational transition: system changes, training and adjustments to processes.
• Disruption: ongoing expenses and the estimated reduction in trading.
• Contingency allowance: based on the project and the uncertainties identified.

Prepare one scenario involving limited work and another involving a more extensive refurbishment. Identify the basis for each estimate. If no design or specification is yet available, flag the uncertainty rather than presenting a figure as definitive.

Spreading the cost of an investment over several years for accounting purposes does not remove the need to pay for it on the agreed dates. Check when the funds will need to be available.

3. Negotiate a procedure, not just a promise

A verbal assurance that the brand ‘does not usually require major work’ does not define your future obligations. Aim to establish a contractual procedure that allows you to plan for and assess each refurbishment.

Discuss an appropriate notice period, the provision of technical specifications and a requirement for an itemised quote before work begins. Ask whether you can obtain alternative quotes from contractors who meet the brand’s requirements, and how approval will work.

It is also worth negotiating limits: how often refurbishments can be required, the scope of the work, or an approval mechanism for expenditure above an agreed amount. These are points for negotiation, not rights automatically guaranteed by law.

Pay particular attention to work required towards the end of the agreement. Ask for clarification on whether it can be postponed, scaled back or waived when little time remains to operate the outlet under the agreement. Do not assume that a refurbishment extends the agreement or guarantees its renewal.

If the franchisor offers a financial contribution, record the amount or calculation method, the payment terms and any repayment obligations.

4. Consider the clause under Portuguese law

Portugal has no specific law governing franchise agreements, no dedicated register of franchisors and no pre-contractual disclosure document with legally prescribed content. The general rules of the Portuguese Civil Code apply, among others, including freedom of contract and good faith in negotiations and in performing the agreement.

Where standard contract terms are involved, Decree-Law No. 446/85, as amended, is relevant, particularly regarding how those terms are communicated and explained. The absence of franchise-specific legislation does not automatically make every investment requirement valid.

Ask a lawyer to assess how clearly the obligation is defined, the powers granted to the franchisor and the consequences of a disagreement. That assessment should take account of the entire agreement and the particular circumstances, without assuming that the franchisee can refuse any upgrade.

Practical conclusion: before signing, turn the refurbishment obligation into a clear plan: what can be required, when, by whom, at what cost and under which procedure. Only then assess whether you have the financial capacity to make that commitment.