Franchise fee increases: what should you agree before buying?

The initial fees in a franchise offer do not tell you how much it will cost to operate a few years down the line. Before joining a franchise network, look beyond the current price list: establish who can change your payment obligations, when and on what terms. Predictable rules on fee increases do not necessarily mean frozen prices, but they can help prevent a later change from undermining your business plan.

1. Find out where fee changes are governed

The right to increase fees is not always set out in the contract’s fees clause. It may appear in a separate price list, a schedule or a section covering changes to the general terms and conditions. The phrase “the fee schedule in force from time to time” therefore deserves particular attention: on its own, it does not explain what limits apply to changes in the amounts charged.

Draw up a fee map, recording the following for every recurring and one-off payment:

• the current amount or calculation method;
• the document setting the fee and its date;
• the person or organisation authorised to change it;
• the conditions for increases and how often they may occur;
• the notice period and the franchisee’s options.

Do not stop at the basic monthly fee. Check charges for software use, system access, administration and other mandatory services too. Ask specifically whether new types of fee can be introduced. A restriction on increases to existing fees offers little protection if the same additional cost can be passed on through a new mandatory charge under a different name.

2. Understand the Hungarian legal framework

Hungary has no standalone, comprehensive franchise act, but it would be wrong to say that franchise agreements are unregulated. Act V of 2013 on the Civil Code specifically recognises franchise agreements in Sections 6:376–6:381. The general rules governing contracts also apply.

Under the Hungarian Civil Code, the parties may amend a contract by mutual agreement. Unilateral amendments are possible where the contract provides for them or legislation permits them. This makes the precise scope of the right to change fees that you accept when signing particularly important. The validity and applicability of a broadly worded clause must always be assessed in the context of the whole contract and the circumstances.

There is also no generally mandatory franchise-specific pre-contractual disclosure document or statutory waiting period. The Hungarian Franchise Association’s guidance recommends allowing at least 14 days to review the contract in advance; this is an association recommendation, not a generally applicable statutory deadline. However, the Civil Code’s duties to cooperate and provide information are also important during contract negotiations.

If you are joining for business purposes, do not assume that the special protections for consumer contracts will apply. Have the fee adjustment clause reviewed by a lawyer experienced in franchise agreements.

3. Distinguish indexation from discretionary fee increases

Indexation links changes in fees to a predetermined indicator. This can be more transparent than an increase set at the franchisor’s discretion, but only if the calculation details are clear.

For example, if the contract refers to a consumer price index published by the Hungarian Central Statistical Office, it should specify the exact index, the reference period and the date of the first adjustment. Also clarify how rounding works, what happens if the index falls and which previous fee amount is used as the basis for the increase.

Ask for written answers to these questions:

• Is there an annual cap?
• Can increases that were not applied be accumulated and charged later?
• Can an exceptional increase be applied on top of indexation?
• If so, on what verifiable grounds and using what calculation?

Fees denominated in a foreign currency create a separate risk. The amount payable in Hungarian forints can rise even without a fee increase. Agree on the exchange rate to be used and the conversion date, then account for exchange rate movements separately from indexation in your business plan.

4. Ask for advance notice and a meaningful choice

Predictability requires more than the franchisor simply announcing a new fee. You need enough advance notice to revise your cash flow plans. The notice should state the new amount, the effective date, the contractual basis and the calculation.

As negotiating objectives, you can seek a ban on retrospective increases, a limit on the number of adjustments each year and a requirement to justify exceptional increases. These are not automatic franchisee rights: they need to be properly set out in the agreement.

For significant changes that cannot be quantified in advance, consider agreeing a specific consultation process or a defined right to terminate. The latter offers meaningful protection only if its timing allows you to decide before the new fee takes effect, and the associated costs do not make it impractical to use. Do not unilaterally stop payments because you dispute an increase: doing so could put you in breach of contract.

5. Test the rules in your financial plan

Ask for previous fee schedules and fee adjustment notices. These do not guarantee future practice, but they can show how the franchisor has applied its own rules so far. When comparing them, make sure you are looking at the same package of services.

Prepare a base case and a downside scenario. In the latter, allow for increases permitted by the contract, potential adverse exchange rate movements and revenue remaining flat. Check whether enough cash would remain for wages, rent and day-to-day operations. If there is no numerical cap on increases, do not conceal that uncertainty behind an arbitrary assumption: treat it as a separate risk to address in negotiations.

Practical takeaway: before signing, make sure you have not just a fee schedule, but also clear rules on fee changes that you can check. Know what can change, when, by how much and what you can do if the new terms are no longer viable.