Buying a franchise: how to keep track of fees and changes

The initial fee is usually clearly displayed in a franchise offer. But the full extent of your payment obligations only becomes apparent when you examine the agreement, fee schedules and operating rules. When joining a franchise network, do not simply compare the advertised percentages. Check the basis of calculation, payment deadlines and scope for future increases too. This will help you turn a commercial offer into clear obligations that you can monitor.

1. Draw up a complete list of mandatory payments

Ask for a draft agreement, including all appendices, the current fee schedule and any documents referred to in the agreement. If some information is confidential, access can be arranged through a non-disclosure agreement. However, protecting know-how should not be used as a reason to leave you unaware of your payment obligations before signing.

Create a table with a separate row for each payment. Include the recipient, amount or formula, due date, VAT treatment, the circumstances that trigger the payment and the document that establishes it. In particular, distinguish between:

• the one-off initial franchise fee and any reservation payment;
• the ongoing royalty fee and its monthly minimum;
• contributions to shared marketing and compulsory local spending;
• charges for software, user accounts and order processing;
• mandatory training, inspections, equipment replacement and system updates;
• administrative fees for changes, approvals or renewal of the relationship.

A mandatory cost does not have to be labelled a fee. It may also arise from compulsory purchases of packaging, goods or services. Check delivery charges, minimum orders and the rules for changes to suppliers’ prices as well. Keep these items separate from the franchisor’s fees in your table, but do not overlook them when making your decision.

For any reservation payment, obtain explicit confirmation of whether it is credited towards the initial fee, the conditions under which it is refundable and what you actually receive in return. The name of a payment alone is not a reliable guide to its legal treatment.

2. Spell out exactly what ‘a percentage of turnover’ means

The same percentage rate can create different obligations under two different brands. What matters is the contractual definition of turnover, not your own understanding of what normally counts as sales revenue.

Ask the franchisor specific questions: Is the fee calculated on amounts including or excluding VAT? Are refunds, cancellations and discounts deducted? How are vouchers treated when sold and subsequently redeemed? Does the calculation also include orders through a delivery platform before its commission is deducted? What about invoiced amounts that customers have not yet paid?

Ask for sample fee statements for both a normal month and a month involving complications. In the second example, include a customer complaint, a product return, a voucher and a late payment. This is not an exercise in estimating your return on investment, but a test of whether both parties interpret the payment provisions in the same way.

The agreement should specify the data source, the relevant accounting period and the procedure for corrections. If till records differ from head office’s statement, you need to know who will investigate the discrepancy and how it will be resolved. Negotiate access to supporting records and a clear procedure for disputing statements. Without clear rules, an unresolved dispute over a small amount should not be allowed to escalate into a problem with performance of the agreement as a whole.

3. Limit unpredictable changes to the fee schedule

Pay particular attention to wording that requires payment ‘in accordance with the current fee schedule’ or under a manual that head office can amend. Ask whether this permits changes only to operating procedures or also allows new charges to be introduced. Significant financial obligations should not be hidden in a document with an unclear updating procedure.

If the agreement allows price increases, focus your negotiations on:

• clearly defined grounds and a method for making changes;
• the frequency of adjustments and adequate advance notice;
• a ban on retrospective increases to fees already incurred;
• a possible cap on increases or a requirement for your consent;
• a procedure to follow if the financial burden increases substantially.

For an inflation clause, a reference to ‘inflation’ is not enough. It should identify the specific index, its publisher, the period used, the date of adjustment and the rounding rule. Also clarify whether fees can decrease and whether an inflation adjustment can be combined with another increase to the same charge.

For marketing contributions, ask for a clear distinction between compulsory payments to head office and your own local expenditure. If you want regular information on how shared funds are used, agree the scope and timing of reporting. Do not assume that you automatically have the right to scrutinise the entire marketing budget.

4. Check the payment provisions against Czech law

The Czech Republic has no dedicated franchise law, compulsory state register of franchises or specific statutory pre-contractual disclosure document for franchises. Nor is there a special statutory cooling-off period for franchise agreements during which you can automatically withdraw after signing.

The principal legislation is the Civil Code, Act No. 89/2012 Coll. A franchise agreement is usually an innominate contract under Section 1746(2), meaning a contract that does not fall within a specifically defined statutory category. Depending on its content, rules governing licences and other contractual obligations also apply. General duties of good faith and pre-contractual disclosure apply during negotiations, but these do not amount to a duty to provide a standardised franchise prospectus.

Unilateral changes to terms and conditions may be subject to Section 1752 of the Civil Code where the conditions for its application are met. You should therefore not assume that any wording allowing changes to a fee schedule permits unlimited increases. Have a lawyer assess the specific mechanism. The European Code of Ethics for Franchising is a self-regulatory document, not Czech legislation; its significance also depends on the commitments made by the particular brand.

Practical takeaway: Before signing, make sure you have a complete list of payments, a verified formula for calculating them and clear limits on changes. Put verbal explanations into the agreement or a binding appendix.