Franchising in Portugal: what to check before paying a reservation fee

Paying a reservation fee may seem like a straightforward step towards joining a franchise network. Yet even before the final contract is signed, that payment can create obligations and expose prospective franchisees to losses. When buying a franchise in Portugal, you need to understand exactly what is being reserved, the conditions for proceeding and what happens to your money if the business does not open.

1. Identify the commitment behind the reservation

A franchisor may propose a territory reservation agreement, a letter of intent or a preliminary contract. The document’s title does not, on its own, determine its legal effect. A letter presented as preliminary may contain binding payment, confidentiality or exclusivity obligations.

Before transferring any money, ask for a document specifying:

• The entity receiving the payment and its relationship with the brand;
• The territory or location covered;
• The reservation period and when it begins;
• The obligations undertaken by both parties;
• How the amount paid will be treated if the final contract is signed;
• The circumstances in which the payment will be refunded, retained or reduced by deductions for expenses.

Also clarify the nature of the payment: is it a fee for a specific service, an advance towards the initial franchise fee, or a deposit intended to operate as a sinal under Portuguese law? These are not equivalent. Ask your lawyer to confirm its legal classification and consequences, rather than assuming that every reservation payment is refundable.

A territory reservation should also state whether it prevents the franchisor from negotiating with other applicants, opening company-owned outlets or authorising new outlets within the defined area. A general promise of “priority” offers little clarity.

2. Understand the Portuguese rules before signing

Portugal has no specific franchising law, nor a legally prescribed standard pre-contractual disclosure document or a mandatory cooling-off period specifically for franchising. That does not mean there is no legal protection.

The Portuguese Civil Code provides the framework for freedom of contract, notably in Article 405. Article 227 requires good faith during negotiations and contract formation, and may provide grounds for pre-contractual liability where the relevant legal requirements are met. The absence of a mandatory disclosure form does not mean that relevant information can be concealed or misleading information provided without consequences.

Where standard contract terms are used, Decree-Law No. 446/85 of 25 October, as amended, applies. This legislation imposes duties to communicate terms and provide information, and regulates prohibited terms, including in business-to-business relationships, subject to the distinctions set out in law. Providing lengthy terms only when payment is due may raise questions about compliance with those duties.

The European Code of Ethics for Franchising is a self-regulatory reference for the sector, particularly on pre-contractual disclosure. It is not Portuguese legislation that automatically applies to every franchisor; you should check whether the network is bound by it and what commitments it has made.

Nor should you rely on an automatic 14-day right to withdraw: buying a franchise to operate as a business does not generally qualify for the cancellation rights available under consumer contract rules.

3. Negotiate objective conditions for getting your money back

The phrase “subject to approval” is insufficient unless it states who gives approval, on what criteria and within what timeframe. Turn the main potential obstacles to opening into written conditions.

Depending on the project, negotiate how the reservation payment will be treated if:

• The necessary finance is not approved by the agreed date;
• Suitable premises cannot be found or approved;
• The intended use is not feasible at the chosen location;
• The franchisor rejects your application after receiving payment;
• A review of the documents reveals material discrepancies with the proposal presented.

Specify what supporting evidence is required, how to notify the other party and how quickly a refund must be made. If expenses can be deducted, negotiate the categories, limits and supporting documentation. Avoid accepting a vague authorisation to deduct any “administrative costs”.

Also set a deadline for signing the final contract and specify what happens if that deadline passes. Any extension should be documented, without assuming that silence amounts to acceptance.

4. Prepare for the decision and payment

Before paying, ask for the draft final contract and the schedules that set out your financial commitments. Compare them with the sales presentation: the territory, opening support and future payments should be consistent.

Keep proposals, messages, document versions and answers to your questions. Important promises about refunds or exclusivity should be included in the agreement, rather than left as verbal assurances.

Confirm the identity and authority of the person signing, as well as the ownership of the nominated bank account. Insist on proof of payment and the appropriate tax documentation. Factor the reservation payment into your available budget: even if it is later offset against the initial franchise fee, it reduces your available cash during the preparation stage.

Practical conclusion: do not pay first and discover the conditions later. Proceed only when you know what is reserved, which obstacles allow you to withdraw and how you will recover your money. Have a lawyer review the agreement before making the commitment.