Franchising in Portugal: reviewing standard contract terms

Turning an existing business into a franchise network requires common rules, but a standard agreement is not legally watertight simply because it has been signed. Before presenting the draft to the first franchisees, the business owner should review its standard terms: how they are communicated, how they allocate risk and whether they comply with legal limits. This review helps prevent the intended consistency from resting on provisions that could be excluded from the agreement or held to be void.

1. Identify the terms that are not negotiated

A franchise agreement usually combines individually tailored elements, such as the franchisee’s details, with terms prepared in advance for repeated use. It is primarily this second group that needs to be assessed under the rules on standard contract terms.

In Portugal, Decree-Law No. 446/85 of 25 October, as amended, governs these terms. Its scope is not limited to consumer contracts: it also includes rules applicable to business-to-business relationships. It can also cover terms included in individually drafted contracts where the receiving party has had no opportunity to influence their content.

Filling in the company name, adjusting a date or allowing a choice between two commercial terms does not, in itself, demonstrate that the whole agreement was negotiated.

Prepare an inventory with three categories:

• Standard terms intended for the entire network.
• Terms open to negotiation within predefined limits.
• Terms that have actually been negotiated, supported by a record of those negotiations.

This inventory helps your lawyer understand how the agreement will be used, rather than assessing its wording in isolation.

2. Assess the draft against Portuguese rules

Portugal has no specific law governing franchise agreements, nor any mandatory registration requirement specific to these agreements. Freedom of contract, provided for in Article 405 of the Civil Code, allows the parties to set their own terms, but within the limits of the law.

General rules on good faith, pre-contractual liability and the performance of obligations also apply. Depending on the agreement’s content and the business activity, Portuguese and EU competition rules, the Industrial Property Code and other general or sector-specific rules may also be relevant.

The European Code of Ethics for Franchising is a self-regulatory instrument, not a Portuguese law of universal application. Its binding effect depends on the relevant association membership or commitment to comply with it; it does not replace legislation.

Nor is there a mandatory franchise disclosure document equivalent to Brazil’s Circular de Oferta de Franquia, or a general statutory ten-day period specific to Portuguese franchising. This does not remove the duties to communicate standard terms and provide information about them. The absence of specific legislation should never be interpreted as permission to include any condition you wish.

3. Review imbalances before finalising the wording

The review should start with provisions that concentrate risk on one party. The aim is not to remove legitimate protection for the franchisor, but to make it legally compliant and understandable to the person committing to the investment.

Ask for particular scrutiny of:

• Exclusions of liability: do not assume that a broadly worded statement removes all liability on the franchisor’s part, particularly in cases of intentional misconduct or gross negligence.
• Penalty clauses: amounts stipulated for breaches need to be reviewed for proportionality; a penalty disproportionate to the loss it is intended to compensate may be prohibited.
• Exclusive powers of interpretation: a clause reserving to the franchisor the power to determine the meaning of the agreement deserves particular attention.
• Dispute provisions: the choice of court should not be treated as a mere administrative detail, particularly if it causes serious, unjustified inconvenience to the other party.

These matters are subject to specific provisions within the rules on standard contract terms. Not all prohibitions operate in the same way: some depend on the contractual context. Avoid copying terms from another network or a foreign agreement without a Portuguese legal review.

4. Create a process that helps demonstrate understanding

The quality of the drafting is only part of the task. Terms must be communicated in full, in an appropriate manner and sufficiently far in advance to allow them to be understood. The party presenting them bears the burden of proving that they were communicated adequately and effectively.

Establish a simple procedure: send a clearly identified version of the agreement and its annexes, record delivery, offer clarification and retain the answers provided. If there are significant changes, highlight them and allow a further review before signing.

A generic declaration that the franchisee has ‘read and accepted everything’ does not automatically remedy failures in communication. Terms that have not been adequately communicated may be excluded; prohibited terms may be void, even if the agreement has been signed.

In practice: before reusing the draft, arrange a legal review of its standard terms and test the process for explaining them. A franchise network needs consistent rules, but it also needs terms that are valid and genuinely understandable.