Buying a franchise: what the initial fee should include

The initial franchise fee is usually the first substantial payment you make when joining a franchise network. But the amount alone does not tell you what you are actually buying. It may cover the right to join the network, a licence, initial preparation and other services, while equipment or delivery may cost extra. Before signing, therefore, look beyond the price: check what the package includes, when payment is due and how you will document delivery.

1. Break a single price down into specific deliverables

The label ‘complete start-up package’ is not a sufficient description of a contractual obligation. Ask the franchisor for an itemised breakdown of what the fee includes and what is charged separately. Each item should have a description, identify the contracting party responsible and specify a delivery deadline. Wherever possible, include a separate price or an agreed method for calculating it.

In particular, distinguish between:

• The right to join the network: whether this covers one-off admission only or also includes a licence for a specified period.
• Initial services: such as preparing a design for the premises, start-up advice or setting up systems.
• Physical goods: equipment, initial stock and other items with their own delivery and acceptance arrangements.
• External costs: delivery, installation, travel expenses or third-party services that may not be included in the offer.

Ask for explicit confirmation of the exclusions as well. A statement such as ‘the price excludes costs associated with making the business operational’ can leave a substantial part of your budget uncertain. Also ask whether the quoted amount includes VAT and who will invoice each item. You need the price breakdown not just to decide whether to buy, but also for your accountant and any prospective finance provider.

2. Do not assume the law defines what the initial package includes

The Czech Republic has no dedicated franchising legislation. A franchise agreement is generally concluded as an ‘innominate contract’ — a contract not specifically defined as a statutory contract type — under Section 1746(2) of Act No. 89/2012 Coll., the Civil Code. Depending on its content, general rules on contractual obligations and provisions governing matters such as licensing or sales also apply. The law therefore does not prescribe a universal list of services that the initial franchise fee must cover.

Nor is there a specific statutory pre-contractual disclosure document for franchises with a prescribed structure and a standard deadline before signing. This does not mean, however, that the parties have no duty to share information. The Civil Code requires parties to act in good faith during negotiations and to disclose relevant factual and legal circumstances to each other when negotiating a contract. The scope of these duties depends on the particular situation.

The practical consequence is straightforward: agree what the fee covers rather than inferring it from the payment’s name. If the offer combines a licence, services and machinery into a single sum, ask for them to be separated, at least into clearly defined sections of the documentation. For equipment supplies, a separate purchase agreement is often clearer. This distinction helps establish what has not been delivered, which party a claim should be made against and how much of the price is affected.

3. Link payment dates to verifiable milestones

A single upfront payment may be one of the brand’s commercial terms, but it is not a legal requirement. Try negotiating staged payments that reflect actual progress towards opening. This is not an automatic entitlement for the franchisee, but a way to distribute risk more evenly between the parties.

A milestone might be signing the agreement, receiving a specific deliverable or activating agreed access. Each milestone needs a clear criterion. Wording such as ‘on completion of preparations’ is less robust than a precise definition of the documents and services to be delivered. Also specify how long you have to check them and how you must report any shortcomings.

Discuss a hypothetical situation with the franchisor in advance: some services have been provided, but another agreed item is missing. Does the entire remaining balance become due? Can you withhold the corresponding part of the payment if the contract permits this? Who will put matters right, and by when? The rules must also protect against misuse by the other party, such as an unjustified refusal to accept delivery.

Take care with any reservation payment made before the main agreement is signed. The document must specify what you are paying for, whether the payment will count towards the initial franchise fee and under what conditions it is refundable. Simply calling it a ‘reservation’ does not answer these questions.

4. Prepare records of acceptance and have the price breakdown checked

For every paid item, identify a document that will confirm the obligation has been fulfilled. For goods, this might be a handover record; for a service, it could be the completed deliverable or confirmation of the scope of work performed. An invoice alone is no substitute for checking that you have received everything agreed. Do not sign a blanket acknowledgement that all obligations have been fulfilled if you are still waiting for part of the package.

Before paying, have an accountant review the breakdown. Different items may require different accounting and tax treatment; their shared marketing label is not the deciding factor. A lawyer should check, in particular, how the price, payment dates, delivery and consequences of non-performance fit together.

Practical takeaway: Before signing, create a single table covering each item, its price, supplier, deadline, proof of acceptance and the procedure for dealing with non-performance. If any column remains blank, you do not yet have a sufficiently clear basis for payment.