Franchising in Portugal: planning for exit in the contract

When turning an existing business into a franchise network, it is natural to focus on opening new outlets. But the first contract should also explain how the relationship ends. A poorly planned exit can leave customers without support, stock unsold and an outlet using the brand without permission. Planning for termination is not a sign of mistrust: it protects investment and continuity of service.

1. Understand the Portuguese legal framework

Portugal has no specific franchising law or dedicated compulsory register for franchisors or franchisees. A franchise agreement is not a specifically regulated contract type and is subject to the general rules of contract law. Freedom of contract, provided for in Article 405 of the Portuguese Civil Code, allows the parties to shape their relationship, but does not override mandatory rules or duties of good faith.

Good faith is relevant during negotiations under Article 227, and in the performance of obligations under Article 762. There is no legally prescribed format for a franchise-specific pre-contractual disclosure document; this does not remove the general duties to provide information. Exit conditions that materially affect the investment should be explained before signing.

Where pre-drafted terms are used without individual negotiation, the rules on standard contract terms, established by Decree-Law No. 446/85, must be considered. A generic declaration that the prospective franchisee has read everything is no substitute for properly communicating and explaining those terms.

The European Code of Ethics for Franchising is a self-regulatory reference, not Portuguese law that applies universally. Certain rules governing agency agreements may, however, apply by analogy where the circumstances of a particular case justify it. Do not therefore assume that a clause automatically rules out any potential goodwill indemnity: seek specific legal advice.

2. Distinguish between the different ways the agreement can end

Avoid a single clause that treats every exit as equivalent. The contract should distinguish between expiry, non-renewal, termination for breach and termination by mutual agreement. If it allows termination on notice, it should specify the circumstances in which that right may be exercised.

For each situation, set out:

• Who can act: the franchisor, the franchisee or both.
• On what grounds: expiry of the term, a material breach or another specified circumstance.
• How notice must be given: the recipient, address, method and proof of receipt.
• When it takes effect: the notice period and effective termination date.
• What happens in the meantime: operations, supplies and support during the transition.

Do not copy notice periods from foreign contracts as though they were Portuguese legal requirements. Set them in light of the investment, the contract term and the applicable legal rules.

Where a breach can be remedied, provide for a notification procedure and a suitable period to put matters right. Distinguish between an isolated delay in submitting information and serious misuse of the brand. The response should be proportionate, and any right to terminate immediately needs justification and legal review.

3. Prepare for the outlet to leave the network

Before signing the first contract, draw up an inventory of everything that will need to be returned, removed, transferred or deactivated. This can form part of a transition schedule attached to the agreement, without replacing its essential clauses.

Branding and digital presence. Identify signage, uniforms, packaging, local web pages, domains and social media profiles. Specify who controls each asset and how permission to use it ends. Do not assume that a digital account can be transferred without complying with the platform’s rules.

Stock and equipment. Clarify whether there is a buy-back arrangement, which items it covers, how their condition will be assessed and who pays for transport and dismantling. Do not leave the franchisee to interpret silence as a guarantee of repurchase.

Customers and outstanding commitments. Define how prepaid services, bookings, warranties and complaints will be handled. The internal allocation of responsibilities must not undermine consumer rights or unilaterally alter contracts with third parties.

Data and confidential know-how. Establish procedures for returning documents, revoking access and retaining only the necessary records. Personal data is not an asset that can be transferred freely: any handover, retention or deletion must comply with the GDPR and applicable national legislation.

4. Test the clause before using it

Run through an exit scenario with your team: an outlet decides not to renew and has outstanding orders, active advertising and branded materials. Who informs customers? Who revokes access? How are the final amounts due calculated? Record the people responsible, the documents needed and any dependencies.

Also have any post-termination non-compete obligations reviewed by a specialist. These require analysis of national and EU competition rules, including Regulation (EU) 2022/720 where applicable. A sweeping restriction does not become valid simply because it has been signed.

Practical conclusion: before recruiting franchisees for your network, prepare an exit matrix covering scenarios, notices, responsibilities and the assets involved. Then ask a lawyer to turn it into clear clauses that are legally appropriate for the business.