Franchising in Portugal: defining territories and exclusivity

Before turning an existing business into a franchise network, you need to decide where each franchisee can operate and what exclusivity means in practice. Drawing lines on a map is not enough: existing customers, online orders and services delivered to customers’ homes can cross territorial boundaries. Setting these rules before expanding helps protect investment and avoid promises that conflict with how the business operates.

1. First, define what you are granting

The term ‘exclusive territory’ can cover different commitments. It may mean that the franchisor will not open another company-owned outlet in that area, will not appoint another franchisee, or will reserve certain sales channels for the franchisee. None of these implications should be left unstated.

Start by separating three elements:

• Authorised location: the premises from which the franchisee may operate.
• Operating area: the area designated for prospecting, deliveries or service provision.
• Territorial protection: the specific commitments the franchisor makes to that franchisee.

Next, identify the situations the business already encounters. Are there corporate customers with premises in several municipalities? Does the existing shop deliver beyond its own town or city? Does the website receive enquiries from across the country? These patterns will not disappear when the first agreement is signed.

Prepare a list of existing customers and channels, distinguishing those that will remain reserved to the franchisor from those that may be allocated to the franchisee. Avoid vague exceptions such as ‘all strategic customers’: set verifiable criteria and explain the commercial implications.

2. Map out territories using business data

Do not allocate areas simply because administrative boundaries are easy to recognise. A Portuguese municipality, or concelho, may contain areas with very different levels of demand, accessibility and service costs. Conversely, a single trading area may span several civil parishes, known as freguesias.

Use data from the existing operation to assess:

• Where customers come from and how often they buy;
• Actual travel and delivery times;
• The concentration of potential customers suited to the business concept;
• The service capacity of a single outlet;
• Physical barriers, seasonality and local competition.

The aim is not to promise turnover, but to understand whether the proposed area offers a commercial opportunity that is consistent with the resources required. Distinguish observed data from estimates and record the assumptions used.

For example, in a business providing services in customers’ homes, distance in kilometres may matter less than travel time between appointments. A very large territory may look attractive yet still compromise service quality.

Produce a map accompanied by an unambiguous written description. If you use postcodes or administrative boundaries, specify the reference source and how future changes will be handled. The franchisee should be able to identify the area without relying on the franchisor’s verbal interpretation.

3. Ensure exclusivity complies with the applicable law

Portugal has no specific franchising law, nor a dedicated compulsory register for franchisors. A franchise agreement is a contract type not specifically regulated by statute and is subject to the general rules of the Portuguese Civil Code, including freedom of contract under Article 405 and good faith in negotiations under Article 227. Standard contract terms are also subject to Decree-Law No. 446/85, where applicable.

Freedom of contract does not, however, permit every form of territorial restriction. Portugal’s Competition Act, Law No. 19/2012, applies, as does Article 101 of the Treaty on the Functioning of the European Union where the relevant conditions are met. Regulation (EU) 2022/720 provides a block exemption for certain vertical agreements, subject to conditions and limits.

An important distinction is between active sales, resulting from activities targeting particular customers or territories, and passive sales, which respond to unsolicited requests. Certain restrictions on active sales may be permissible in exclusive distribution systems; restrictions on passive sales are generally particularly problematic, subject to the specified exceptions.

Do not, therefore, turn a promise of exclusivity into an automatic ban on serving any customer who lives in another area. Nor should you assume that all online sales are the same: targeted digital advertising and unsolicited enquiries require different assessments. Have the restrictions reviewed by a legal adviser before presenting them to prospective franchisees.

The European Code of Ethics for Franchising is a self-regulatory reference, not Portuguese law or an exemption from compliance with competition rules.

4. Agree rules for online enquiries and future changes

Define how enquiries received through central channels will be allocated. The customer’s location, the place where the service will be delivered and available capacity may each point to a different outlet.

Document who responds to the enquiry, who enters into the contract with the customer, who issues the invoice and who handles complaints. If personal data is shared between businesses, also ensure compliance with the General Data Protection Regulation.

Establish a procedure for overlapping claims: logging the enquiry, reviewing the facts, identifying who makes the decision and setting a response deadline. The rule must work even when two outlets claim the same customer.

If continued exclusivity depends on performance, set objective indicators, assessment criteria and an opportunity to remedy failures. Avoid unrestricted powers to reduce the territory unilaterally. Any mechanism for making changes should undergo legal review and be clearly explained before signing.

Practical conclusion: before recruiting franchisees, prepare a map, a list of reserved channels and customers, and rules for shared enquiries. Have the whole framework checked by a legal adviser: a franchise network grows more successfully when everyone understands the limits and opportunities of their operations.