Franchise disputes: what should you agree before buying?

Joining a franchise network means committing to a long-term working relationship, but even a good relationship does not rule out disputes. A promised service may not be delivered, an invoice may be disputed, or you may interpret a contractual requirement differently. Before buying, therefore, look not only at the rights you will have, but also at how, where and at what cost you can enforce them.

1. Know which rules you can rely on

Hungary has no separate, comprehensive franchise act, but that does not mean franchise agreements are unregulated. Act V of 2013, the Hungarian Civil Code (Ptk.), expressly recognises franchise agreements as a contract type. General contract rules also apply, including provisions on co-operation, disclosure, performance and breach of contract.

Depending on the nature of the relationship, competition law, intellectual property law and other generally applicable legislation may also be relevant. Assessing a dispute may therefore require more than reading a single paragraph of the contract: your lawyer needs to consider the schedules and the obligations involved together.

Hungary has no general franchise-specific system requiring a mandatory pre-contractual disclosure document. The Hungarian Franchise Association’s guideline allowing at least 14 days to review the agreement before signing is an association recommendation, not a statutory waiting period. Use this time to check the dispute resolution terms too.

When buying a franchise for business purposes, do not assume that you are entitled to special protection as a consumer. Franchisees typically enter into agreements as independent businesses; your rights need to be safeguarded on that basis.

2. Include a workable negotiation process in the agreement

A sentence stating that ‘the parties shall resolve their disputes amicably’ is not enough on its own. It does not explain whom you should notify of a problem, when you can expect a response, or what happens if discussions fail. Ask for a procedure that works even in urgent situations.

The agreement should cover at least the following:

• Point of contact: who is authorised to receive a complaint or formal demand, and who can decide how to resolve it?
• Service of notices: which postal or electronic address must a communication be sent to for it to be validly served?
• Deadlines: how much time is allowed for a response, management-level discussions and any agreed action?
• Conclusion: when are negotiations deemed unsuccessful, and when can you take the dispute elsewhere?

A staged procedure might begin with your day-to-day contact, move on to management-level discussions and then proceed to mediation. These are options to negotiate, not mandatory steps for every franchise relationship.

Do not accept an open-ended obligation to negotiate. The clause should not prevent you from seeking urgent legal protection, and you should ask a lawyer to check how it interacts with limitation periods and other deadlines for bringing claims. Do not automatically assume that sending a letter of complaint interrupts the limitation period.

3. Check the governing law, forum and language

Look for three separate points in the agreement: which country’s law applies, which court or tribunal will hear the dispute, and which language the proceedings will use. These are particularly important when joining a foreign brand or an international franchise network.

Choosing foreign law is not the same as designating a foreign court. EU rules may also govern how the applicable law is determined; a choice-of-law clause cannot override every mandatory provision. The validity of a jurisdiction clause must likewise be assessed in light of the particular agreement and the relevant rules.

If you see an arbitration clause, do not treat it as a mere administrative detail. In Hungary, Act LX of 2017 provides the basic legal framework for arbitration. An arbitral tribunal is not a mediator: it issues a binding decision, with no equivalent to an ordinary court appeal; the grounds for setting an award aside are limited.

Ask which institution and procedural rules will apply, how many arbitrators will hear the dispute, and what fees you can expect. Arbitration is not necessarily cheaper. Proceedings in another language may require translation, while foreign governing law may call for additional legal expertise.

4. Make sure commitments can be proved

Enforcing a claim often depends on whether you can prove exactly what the franchisor promised and what happened when those obligations were due to be performed. Rather than relying on a promise made during a presentation, ask for it to be recorded in the contract: who will do what, by when and on what terms.

Keep the signed agreement and its schedules, subsequent amendments, key correspondence, invoices and records confirming performance. You should also be able to establish which version of each document applied from which date. If administration takes place through the franchisor’s platform, clarify how you can lawfully retain your own copies of entries relating to you.

After a verbal discussion, send a short summary and ask for confirmation. This does not replace any required formal amendment to the agreement, but it may help establish what happened. When collecting evidence, respect your data protection and confidentiality obligations.

If a dispute arises, do not automatically stop paying fees: whether withholding payment or setting off a claim is lawful requires a separate assessment. Even if your complaint is well founded, a hasty step could put you in breach of contract.

5. Test the clause against a hypothetical dispute

Before signing, choose a simple scenario: the franchisor fails to deliver a service by the agreed deadline but still demands payment for it. Work through whom you would write to, what you would need to prove, how long you would wait, and where you could bring proceedings. Ask a lawyer for a cost estimate covering the initial formal demand and possible subsequent steps, not just the contract review.

Practical takeaway: only accept a dispute resolution clause if the procedure is clear, the forum is accessible, and the cost does not make enforcing your rights impractical.