Buying a Franchise: Understand Fees and Price Changes

When you buy a franchise in Denmark, you join a network with a shared concept, systems and obligations. But the initial fee and ongoing royalty do not necessarily tell the whole story about what you will pay. This guide helps you map out the fees and agree clear limits on what the franchisor can change before you commit.

1. Bring all payments together in one schedule

Ask for a comprehensive written payment schedule covering both start-up and ongoing operations. Review not only the franchise agreement itself, but also its schedules, price lists, the operations manual and any separate agreements for IT, training and marketing.

Divide the schedule into three groups:

• One-off payments: for example, the initial franchise fee, training, installation and set-up on shared systems.
• Ongoing payments: royalties, marketing contributions, software subscriptions and mandatory advisory services.
• Payments triggered by specific events: additional training, inspection visits, a change of systems or adaptations to a revised concept.

For each item, note who charges it, when it falls due, whether the amount includes or excludes VAT, and exactly what you receive in return. Also distinguish between a non-refundable fee and a deposit that may be refundable.

Ask directly: “Are there any mandatory payments that are not listed here?” Ask for the answer and the schedule to form part of the contractual documentation. A verbal assurance that any additional costs will be modest is not a sufficiently reliable basis for your budget.

2. Clarify how royalties are calculated

A percentage is only transparent if the basis for calculating it is precisely defined. If the agreement simply says “turnover”, ask for a more detailed explanation.

In particular, clarify how the following are treated:

• VAT, discounts, returns and refunds;
• gift cards, both when sold and when redeemed;
• sales through delivery platforms and the commission they charge;
• online sales and orders processed centrally but fulfilled locally;
• sales for which the customer fails to pay.

Also check whether the agreement includes a minimum royalty. A minimum payment may mean that your fees do not fall proportionately if business is slower than expected. Clarify whether the minimum payment replaces the percentage-based royalty or is charged on top of it.

Ask the franchisor to prepare a sample royalty statement using hypothetical sales, discounts and returns. The aim is not to assess expected earnings, but to check how the payment mechanism works. Have your accountant verify the calculation, and make sure you can reconcile ongoing invoices against your own sales data.

3. Examine shared funds and mandatory purchases

A marketing contribution can fund valuable activities for the whole franchise network. However, it is important to understand the difference between contributing to a shared fund and paying for a specific local service.

Ask which expenses the fund may cover, whether these include administration, and how spending is documented. Will you also have to pay for local advertising, promotional materials or launch activities? Agree on reporting arrangements so you can regularly review how shared funds are used. Do not assume that your contribution will necessarily be spent in your own area.

Mandatory purchases can also affect your overall costs. Check delivery charges, minimum orders, payment terms and requirements to take out particular subscriptions. Ask whether the franchisor receives commission or bonuses from suppliers, and whether any of these amounts benefit the network, in whole or in part. This is something to clarify, not an automatic entitlement to a payout.

Requirements to use specified suppliers can help maintain consistent quality. They should also be reviewed by a legal adviser if they raise competition law concerns.

4. Understand the rules on fees in Denmark

Denmark has no dedicated franchise law and no franchise-specific requirement to register franchise agreements. Nor is there a legally required, standardised disclosure document that guarantees you a comprehensive fee schedule before signing. General business registration requirements still apply.

Franchise agreements are governed by the Danish Contracts Act and general principles of contract law. Freedom of contract is the starting point. The Danish Marketing Practices Act and Competition Act may also be relevant, while the Danish Interest Act affects late payments.

The absence of specific disclosure requirements does not mean that a franchisor is free to mislead you or withhold material information. Depending on the circumstances, general rules may impose a duty to disclose information and provide for consequences where information is incorrect or incomplete. Assessing a particular case requires legal advice.

Section 36 of the Danish Contracts Act allows unreasonable contractual terms to be amended or set aside. However, you should not draw up your budget on the assumption that this provision will later rescue you from an expensive commercial agreement. Resolve any uncertainties in advance.

5. Agree limits on future changes

Look out for wording such as “current price list” or “fees may be adjusted from time to time”. Check whether the franchisor can change existing charges, introduce new ones or require you to make investments through changes to the operations manual.

Ask for clear terms covering:

• which payments can be changed, and how;
• when changes can take effect and how much written notice you will receive;
• any caps on increases and separate approval of new fees;
• how major system changes and mandatory investments will be handled.

For index-linked adjustments, the agreement should identify the index, base period and calculation method. Also clarify whether adjustments work both upwards and downwards. Make sure the order of precedence between the contract, its schedules and the manual is clear, so that a limit on charges cannot be undermined by another document.

Practical takeaway: Only sign once you have a comprehensive payment schedule, a tested royalty calculation and clear limits on future changes. Have an accountant check the figures and a solicitor review the contractual documentation.