Hong Kong Franchise Deposits: Agree Reservation Terms, Refund Rights and Who Receives Your Payment

When exploring a franchise opportunity in Hong Kong, a brand may ask you to pay a ‘reservation fee’, ‘expression-of-interest fee’ or ‘deposit’ before providing the full documentation or reserving a site. These labels do not, by themselves, determine whether the money is refundable. What matters is the terms you accept when you pay. This guide focuses on the first payment before formally taking on a franchise, helping you turn verbal promises into arrangements that can be checked and enforced.

1. Read the payment documents, not just the label

Even if you have not yet signed the formal franchise agreement, an application form, reservation agreement, email correspondence and the act of making payment may create a binding agreement. Do not assume that calling something an ‘expression of interest’ means it carries no obligations. Nor should you interpret ‘credited towards the franchise fee’ as ‘refunded in full if you do not proceed’. A credit and a refund are different things.

Before paying, ask the brand to answer these questions in writing:

• What does the payment secure? Does it reserve the right to continue negotiations or a particular site, or pay for a site assessment service?
• How long does the reservation last? Specify the start and expiry dates, and whether the brand may recruit other applicants during that period.
• How will the payment be credited later? State which fee it will count towards, when the credit will be applied and whether any other conditions must first be met.
• Which other documents apply? Obtain the application terms, fee schedule and any referenced attachments, and keep the versions in force on the payment date.

If the brand says it is ‘just an administrative formality’ and there is no need to read it closely, that is all the more reason to pause. A simple process does not necessarily mean limited obligations.

2. Check who receives the money and who must refund it

The brand, recruitment agent and company signing the agreement may not be the same legal entity. Before paying, verify the recipient company’s full name, company number, business registration details and bank account name, then compare them with the reservation agreement and proposed franchise agreement. Company registration and business registration do not mean the government endorses the franchise scheme, nor do they guarantee financial stability.

If an agent or related company collects the payment, ask for evidence of its authority to do so, and ensure the agreement identifies who is responsible for refunds. Do not settle for an explanation that they are ‘all part of the same group’: companies within a group are usually separate legal entities.

The receipt should also identify the payer, recipient, purpose of payment, date and agreement under which payment is made. If you intend to operate through a limited company but are paying personally for now, agree in advance whether the payment can be applied towards that company’s franchise fee and who should receive any refund. This helps avoid disputes arising from a mismatch between the parties involved.

Be particularly cautious about requests to transfer money to a personal account, last-minute changes to the payment recipient or a refusal to issue a formal receipt. Even if someone verbally guarantees a refund, recovering the money may still be difficult if the recipient company cannot repay it.

3. Set out a clear refund procedure

‘Refundable if approval is refused’ is still too vague. Does it mean approval by the brand, approval of bank finance or approval of the site? Who decides, and by when? Negotiate specific conditions for payment that address your actual risks, rather than relying on a broad statement such as ‘the contract will only be signed once you are satisfied’.

For example, if you need a loan to proceed, you could propose that moving to the next stage depends on obtaining approval for an agreed amount of finance by a specified date. The terms should also state what evidence the applicant must provide and how to notify the brand if finance is not approved. This is a safeguard to negotiate, not a refund right automatically granted by law.

A workable refund arrangement should include at least:

1. Trigger events: The brand rejects the application, specified conditions are not met, or the brand fails to provide agreed documents on time.
2. How to claim: The postal or email address to which notice must be sent, any supporting evidence required and the deadline for giving notice.
3. Refund deadline: The number of working days within which the money must be returned after valid notice is received.
4. Permitted deductions: If the cost of completed services may be deducted, specify the items, caps and supporting documentation required. Avoid wording that leaves ‘administration fees’ entirely to the brand’s discretion.

You should also ask whether you can obtain a refund if the formal contract introduces substantial new charges or restrictions that you refuse to accept. The safer approach is to obtain a complete draft contract before considering payment. If the brand insists on payment first, you could negotiate a smaller initial amount, staged payments or an arrangement under which an independent third party holds the funds subject to clear conditions. None of these arrangements applies automatically, and they may involve fees.

4. Understand Hong Kong’s legal framework and keep payment records

Hong Kong currently has no franchise-specific legislation. It also has no statutory disclosure-document regime, franchise registration system or mandatory cooling-off period generally applicable to franchise recruitment. You should therefore not assume that you have a fixed number of days after payment in which to cancel unconditionally.

Your rights depend mainly on common-law contract principles and applicable general legislation. For example, if a brand induces you to pay through false statements, common-law misrepresentation principles and the Misrepresentation Ordinance (Cap. 284) may apply. Whether you can rescind the agreement or claim damages depends on the statements made, your reliance on them, the contract and the evidence. The Control of Exemption Clauses Ordinance (Cap. 71) may also affect certain exclusion or limitation clauses, but it does not automatically invalidate every ‘non-refundable’ clause.

A franchise is a commercial transaction, so you should not assume that protections for ordinary consumer purchases apply. If the documents say that payments are ‘non-refundable under any circumstances’, have a Hong Kong lawyer review them before you pay, rather than assuming afterwards that the clause cannot be enforced.

Keep screenshots of advertisements, correspondence, signed documents, transfer confirmations and receipts. Include recruitment staff’s refund promises in the agreement rather than leaving them as verbal assurances. If a dispute arises, put together a timeline of the payment and seek legal advice promptly.

Practical takeaway: Even the first payment deserves proper scrutiny. Do not let claims of limited availability rush you into paying before you have established four things: who receives the money, what it secures, when it is refundable and who is responsible for returning it.