Franchising in Portugal: setting the contract term and renewal arrangements

When turning an existing business into a franchise network, it is easy to focus negotiations on the opening and leave renewal until later. Yet the contract term affects investment, financing and both parties’ ability to plan. Establishing from the outset how the relationship can continue helps prevent a healthy franchise outlet from reaching the end of its term without knowing the conditions under which it can carry on trading.

1. Choose a term that reflects the investment

Do not simply copy the term used by another brand. Start with the commitments needed to set up and operate your concept: fit-out works, equipment, premises leases, financing and any requirements to upgrade the premises.

Draw up a timeline with support from your accountant and solicitor. Distinguish between the signing date, the preparation period and the opening date. If the contract term starts before the outlet opens, the franchisee will have less actual trading time. The contract should make that consequence clear and specify how significant delays will be handled, distinguishing between their respective causes.

Compare the proposed term with cautious investment recovery scenarios. This comparison is a planning tool, not a guarantee of a return. An operation may take longer to deliver results, and renewal should not be presented as certain if it depends on fresh approval.

Also check whether the premises lease and key equipment allow the business to continue operating. Renewing the franchise agreement achieves little if, in the meantime, the franchisee loses the right to use the premises or faces an unplanned equipment replacement.

2. Distinguish between the contract term and the right to renew

Portugal has no specific franchising law that sets a minimum contract term or grants a general, automatic right to renewal. A franchise agreement is an atypical contract — one without its own specific statutory framework — and is subject, among other provisions, to the general rules of the Portuguese Civil Code, including freedom of contract and good faith in negotiations and performance.

Where standard contract terms are used, Decree-Law No. 446/85, as amended, also applies. Portuguese and EU competition rules remain relevant, particularly if renewal extends exclusivity or non-compete obligations. Freedom of contract does not override mandatory legal limits.

Choose and explain a specific structure:

• Automatic renewal: the relationship continues unless either party gives notice opposing renewal in accordance with the agreed terms.
• Renewal subject to conditions: continuation depends on meeting predefined requirements.
• A new agreement: expiry creates an opportunity to negotiate, but does not guarantee that another agreement will be signed.

These arrangements are not equivalent. Avoid describing a contract as ‘renewable’ without identifying who can decide, what procedure applies and what happens if there is no response.

The European Code of Ethics for Franchising is a self-regulatory reference, not Portuguese law. Its application through association membership or contractual provisions does not replace a legal assessment of the chosen arrangements.

3. Set verifiable conditions before signing

Making renewal depend solely on a ‘satisfactory’ assessment creates uncertainty. Translate that expression into clear, documentable criteria that are proportionate to the continuation of the relationship.

Relevant considerations may include compliance with payment obligations, remedying identified breaches, continuing to meet the legal requirements for the activity and having suitable premises available. For each condition, specify what evidence will be reviewed, who will conduct the assessment and whether there will be an opportunity to remedy shortcomings.

Address costs explicitly. Will there be a renewal fee? Will additional training or upgrades to the premises be required? Distinguish between mandatory costs, expenditure dependent on the outlet’s condition and optional improvements. If amounts cannot yet be fixed, establish a clear method for determining and communicating them.

Avoid making continuation dependent on unconditional acceptance of an unknown future contract. If the intention is to use the version of the agreement then applicable across the network, clarify how it will be presented and negotiated, subject to legal limits. The franchisee needs time to assess the financial and legal effects of the new terms.

4. Organise the decision well in advance

Create an internal renewal timetable, separate from routine monitoring of the outlet. Start early enough to assess the premises, resolve outstanding issues and allow informed investment decisions.

The process should include an expression of interest, a documented assessment, communication of the proposed terms and a formal decision. Record who is responsible, the response deadlines and the communication methods specified in the contract. Do not mistake a positive conversation for a completed renewal.

Before recommending substantial works close to expiry, clarify the contractual position in writing. Encouraging investment while continuation remains uncertain can create expectations and disputes that should be prevented in keeping with the duty of good faith.

Practical conclusion: before entering into the first agreement, prepare a one-page summary answering four questions: when does it expire, who decides on renewal, what criteria apply and what will it cost? Then check that the contract reflects those answers unambiguously.