Franchising in Portugal: preparing for the transfer of a franchise unit

When turning an existing business into a franchise network, it is natural to focus on new openings. But you should also prepare for the moment when a franchisee wants to sell their operation. A clear transfer procedure protects service continuity, prevents unrealistic promises to buyers and allows you to assess who will take responsibility for the unit, without placing arbitrary obstacles in the way of an exit.

1. Distinguish what is being transferred

The phrase ‘selling the franchise’ can conceal different types of transaction. Before drafting clauses, identify what might change hands:

• The business establishment: equipment, stock and other operating assets may be transferred, but this does not mean that all contracts automatically transfer with the business.
• The franchisee’s position under the franchise agreement: the new operator takes the place of the previous one, on the terms agreed and to the extent permitted by law.
• The shares in the company: ownership of the franchisee company changes, but the entity that signed the agreement remains the same.

This distinction has practical consequences. A clause covering assignment of the agreement may not, on its own, cover a change of control of the company. If the identity of the shareholders or manager is crucial, the agreement should expressly address that possibility.

Work with your lawyer to map out the proposed transaction, the consents required, the documents to be submitted and the effects on existing obligations. Do not confuse permission to use the brand with ownership of the equipment or the right to occupy the premises.

2. Place the transfer within the Portuguese legal framework

Portugal has neither a specific franchising law nor a compulsory register specifically for franchise networks. The freedom of contract provided for in Article 405 of the Portuguese Civil Code allows parties to structure transfer conditions within legal limits.

Articles 424 onwards of the Civil Code are particularly relevant to the assignment of a party’s contractual position. In contracts involving reciprocal obligations, transferring that position requires the other contracting party’s consent, which may be given before or after the assignment is entered into. The wording and its specific effects should be checked by a lawyer.

Good faith requirements also apply during negotiations and performance of the agreement, as does the legislation on standard contract terms, approved by Decree-Law No. 446/85, where terms have been drafted in advance without individual negotiation. Broad freedom of contract does not make every restriction valid.

Depending on the transaction, company, employment, tax, tenancy and data protection rules will also need to be considered. The European Code of Ethics for Franchising is a self-regulatory reference, not a Portuguese law of general application.

3. Define a clear, documented consent procedure

The agreement should explain how the franchisee must communicate their intention to transfer the unit and what information is needed to assess the request. Avoid relying on informal approval from the brand’s founder.

Set out a simple sequence:

1. Written notification of the proposed transaction and the buyer’s identity.
2. Submission of the information needed to assess financial capacity, experience and availability to run the operation.
3. Review of the unit’s condition and any outstanding obligations.
4. A reasoned decision and a statement of the conditions for completing the transfer.

Set an appropriate response period in the agreement, making clear when it starts and how missing information will be requested. Do not present this period as a statutory requirement specific to franchising.

Approval criteria should be objective and known in advance. The transfer should not be used to impose unexpected conditions once the seller has already made commitments. If there are costs for assessing or training the successor, explain in advance what they cover, who pays them and when they are due.

4. Prepare the operational handover and documentation

Approving the buyer is not enough. Before completion, draw up a checklist of conditions covering the training required, access to systems, the lease position, any applicable authorisations and an inventory of the assets included.

Also document how debts, receivables, outstanding orders and commitments to customers will be dealt with. Do not assume that a personal guarantee given by the outgoing franchisee remains valid after the transfer: whether it continues, is replaced or is discharged requires separate analysis.

In the final documentation, clarify whether the existing agreement will be assigned or a new agreement signed. Identify the applicable term, the agreed payments and the date on which the successor takes over the operation. Any changes should be understood before the parties make binding commitments.

Arrange a secure handover of access rights without sharing personal passwords, and limit the disclosure of data during the assessment of the business. Also check the obligations towards employees where a transfer of a business or establishment takes place.

Practical takeaway: before bringing your first franchisee on board, work through a hypothetical sale of a unit. If you cannot identify who gives approval, what is being transferred and who is responsible for outstanding obligations, the procedure still needs work.