Franchise confidentiality: what should you agree to before buying?

Joining a franchise network can give you access to operational know-how that the franchisor is entitled to protect from competitors. For this reason, they may ask you to sign a non-disclosure agreement (NDA) while you are preparing to buy. This is a separate legal commitment, however: it can have consequences even if you never open a business. The aim is not to avoid confidentiality obligations, but to agree terms that let you assess the offer safely.

1. Understand the legal framework before you sign

Hungary has no standalone, comprehensive franchise act, but it would be wrong to say that franchising is unregulated. Act V of 2013 on the Civil Code specifically recognises franchise agreements. General civil law rules on entering into contracts, co-operation, providing information and breach of contract are also important.

Act LIV of 2018 on the Protection of Trade Secrets also plays a key role in protecting confidential operational know-how. Information does not become a trade secret in law simply because the franchisor calls it one: its secrecy, the economic value arising from that secrecy, and whether its lawful holder takes reasonable protective measures in the circumstances all matter. A contract can nevertheless impose confidentiality obligations on a broader range of information, making the precise wording particularly important.

There is no generally mandatory, dedicated franchise disclosure document or statutory franchise waiting period. The Hungarian Franchise Association’s guidelines on pre-contractual disclosure support confidentiality and the phased provision of information, and recommend allowing at least 14 days to review the contract. This is an industry recommendation, not a generally binding statutory time limit.

2. Define precisely what is confidential

Do not settle for a statement that ‘all information obtained during negotiations is confidential’. Ask for a clearly defined scope: this might include internal processes, recipes, training materials, non-public financial statements and business plans. Make sure it is clear how confidential documents will be marked and how sensitive information shared verbally will be confirmed in writing.

Ask for explicit exceptions for information that:

• is already lawfully in the public domain, or later becomes public through no breach of the agreement on your part;
• was demonstrably already in your possession;
• is lawfully received from a third party without a duty of confidentiality;
• is developed by you independently of the materials provided.

Also address disclosures required by law or by an order from a competent authority. Prior notification should only be required where legally permitted.

These exceptions need to be backed by reliable records. Keep your earlier business plans, records of when files were received, and correspondence with the franchisor. That way, any later dispute will not depend solely on memory.

3. Ensure your advisers can access the information

Confidentiality terms must not be so restrictive that even your solicitor or accountant cannot review the offer. Before signing, ask for permission to share the necessary information with your legal, financial and tax advisers and, where justified, your finance provider. Agree that access will be limited to what is needed for the assessment and subject to appropriate confidentiality obligations.

Clarify whether each recipient needs separate approval, whether advance notification is enough, and what liability you bear for the conduct of those assisting you. If you have not yet formed the company that will operate the franchise, it is particularly important to understand what you are committing to personally and on what terms your company can later receive the materials.

A practical example: the franchisor allows only you to view an existing outlet’s financial results. That is not enough for an informed decision if your accountant cannot check what the costs include. Possible solutions include a controlled-access data room, an in-person review or a separate confidentiality undertaking from the adviser. These are options, not automatic rights; they need to be agreed in advance.

4. Separate confidentiality from business restrictions

An NDA sometimes contains clauses that go beyond protecting information. These might prohibit negotiations with other brands, restrict approaches to employees or prevent you from starting a similar business. Do not treat these as an obvious part of confidentiality: they require a separate legal and commercial assessment.

Also clarify the permitted purpose. You may use the know-how received during negotiations to assess the offer, but this does not give you permission to apply it commercially. Equally, do not accept a vague ban on any future activity that draws on your general professional experience.

Check any contractual penalty as well. What conduct triggers it, what counts as a separate breach, and can additional damages be claimed alongside it? Under the Hungarian Civil Code, a contractual penalty must be agreed in writing; a court may reduce an excessive penalty at the request of the party liable to pay it. This is no substitute for negotiating the terms beforehand, nor a reason to accept an amount you cannot reasonably commit to.

5. Agree what happens if you do not join

Ending negotiations does not necessarily end your confidentiality obligations. Specify how long they last and how the protection of trade secrets relates to the information remaining secret. No single duration is suitable for every type of information.

Agree arrangements for returning or deleting documents, handling backup copies and retaining records with restricted access where needed to protect your position in legal claims. Do not promise complete deletion if your systems cannot carry it out in a way you can demonstrate.

Practical takeaway: only sign confidentiality terms that clearly protect the franchisor’s know-how, allow proper due diligence and leave you with obligations you can still meet if negotiations fall through.