Franchising in Portugal: planning for changes to the business model

When turning an existing business into a franchise network, it is natural to want to retain the freedom to improve the concept. But replacing equipment, refreshing the brand identity or adopting a new IT system may require every franchisee to invest again. Before signing the first agreement, define how these changes will be decided, communicated and funded. The aim is to allow the brand to evolve without turning the initial investment into an unpredictable financial commitment.

1. Distinguish operational adjustments from structural changes

Not every update should follow the same procedure. Amending a cleaning instruction does not have the same impact as replacing a shop’s furniture or changing its management platform.

Draw up a simple matrix with three categories:

• Routine adjustments: minor process improvements that require no significant investment and do not change commercial terms.
• Updates with an operational impact: changes that require training, revised staff schedules or temporary disruption.
• Structural changes: changes to branding, equipment or technology that involve significant investment or alter the unit’s economics.

For each category, identify who can propose the change, who approves it, what information must accompany the proposal and how the implementation deadline is set. These categories are a management tool, not legal classifications.

Avoid judging the significance of a change solely by its purchase price. Inexpensive software may require data migration, training and several days of reduced productivity. Consider the total cost to the unit, including staff time.

2. Set contractual limits that are valid in Portugal

Portugal has no specific franchising law. A franchise agreement is an atypical contract, meaning it has no dedicated statutory framework, and is based on the freedom of contract provided for in Article 405 of the Portuguese Civil Code, within legal limits. Good faith in negotiations and contract performance, Portuguese and EU competition rules, and the regulatory frameworks relevant to the business activity also apply.

Where a franchisor presents pre-drafted terms that have not been individually negotiated, particular attention should be paid to Decree-Law No. 446/85 of 25 October, which governs standard contract terms. This framework can also apply to business-to-business contracts: it requires terms to be properly communicated and explained, and places limits on their content. A signature does not automatically make every term valid.

For this reason, avoid wording such as ‘the franchisor may change all obligations at any time’. A broad power to make unilateral changes requires legal review, particularly in relation to good faith, contractual balance and the rules governing the terms used.

The agreement should distinguish permitted operational updates from changes that require written agreement. A revision to the operations manual should not be treated as automatic authorisation to change royalties, impose a complete refurbishment or alter fundamental rights.

The European Code of Ethics for Franchising is a self-regulatory reference, not Portuguese law. Its binding force derives from applicable membership or contractual commitments. It does not replace a legal review of the process for making updates.

3. Prepare a proposal that allows the impact to be assessed

Before requiring a change that involves investment, prepare a decision brief. It should explain the problem to be solved, the alternatives considered and the expected operational effect.

Include at least:

• The equipment or services required and their estimated costs;
• The time needed for installation, training and any closure;
• Additional recurring costs and what will happen to the equipment being replaced;
• Responsibility for payment and any support available from the franchisor;
• The proposed deadline and conditions for a phased rollout.

Do not present an expected improvement as a guaranteed return. If the change has been tested in a company-owned unit, explain the test conditions and any relevant differences compared with franchised units.

Consult operators before making the final decision. A recently opened unit may still be recouping its investment in the equipment you intend to replace. This should be considered in the assessment, even where there is a contractual basis for the update.

4. Communicate, document and monitor implementation

Set out a written process: proposal, consultation, decision, formal notification and follow-up. Identify who is responsible for answering questions and record which version of the documents applies to each unit.

Deadlines should be proportionate to the complexity of the change. An urgent legal requirement may need to be handled differently from a planned cosmetic refresh; document the reasons and seek to minimise operational disruption.

Where a change requires agreement, formalise that agreement before incurring costs on the franchisee’s behalf. Do not confuse receipt of a message with acceptance of new contractual terms.

After implementation, compare actual costs and difficulties with the initial forecast. Use this information to improve the process for subsequent units and share the lessons learnt across the network.

Practical takeaway: before expanding, choose a plausible future change and run through the entire process, from approval to payment. If it is unclear who decides, who bears the cost and when agreement is required, the process still needs work.