Franchise manual: what should you check before signing?

Joining a franchise network means choosing more than a brand name: you also commit to operating rules. Many of these are often set out in the operations manual rather than the agreement itself. Before buying a franchise, you should therefore make it a specific part of your due diligence to establish what the manual requires, how it can change and who pays for those changes. Even a short agreement can carry substantial ongoing investment obligations.

1. Clarify the manual’s legal status

Hungary has no single dedicated statute covering every aspect of franchising, but that does not mean franchises are unregulated: Act V of 2013, the Hungarian Civil Code, expressly recognises franchise agreements. Section 6:376 defines the basic arrangement, under which the franchisee uses protected rights and know-how, sells in its own name and for its own account, and pays a fee.

Alongside the franchise-specific provisions, general contract rules apply, including duties to co-operate and provide information. There is no generally mandatory pre-contractual disclosure document with standardised content, or franchise registration requirement, under separate franchise legislation. This does not, however, remove the obligation to disclose material circumstances.

The European Code of Ethics for Franchising is a self-regulatory standard, not Hungarian law. Its significance should be assessed in light of the relevant network’s membership commitments and any references to it in the agreement.

Ask whether the manual is an annex to the agreement, a set of rules incorporated by reference or simply guidance. The order of precedence between the documents must be clear: what happens if the agreement and the manual say different things about the same cost or task? The document’s title alone does not determine whether it is binding.

2. Ask for meaningful access before committing

Franchisors have a legitimate interest in protecting their know-how, so they may not freely provide the complete manual to every prospective franchisee. Confidentiality and informed decision-making are nevertheless compatible: possible solutions include a non-disclosure agreement, supervised access or a detailed extract setting out the financial obligations.

Do not settle for a contents page if it does not explain the requirements you will have to meet. Before committing to a non-refundable fee, ask for answers to these questions:

• What premises fit-out, equipment and IT systems are mandatory?
• What training must be completed, and who pays for travel, staff cover and attendance?
• Are there minimum stock levels, mandatory opening hours or specified staffing levels?
• What inspections or audits should you expect, and how must any identified shortcomings be rectified?
• Which purchases require the franchisor’s prior approval?

When reviewing the manual, record its version and date together with the franchisor. Also ask for written confirmation of whether any amendments are under way that could create additional costs before you open. If material obligations are only disclosed after payment, that is a reason to postpone your decision, not to sign more quickly.

3. Translate the requirements into costs

Costs arising from the manual are not always included in the initial investment figure quoted in the franchise offer. A mandatory stock management system, for example, may require not only a subscription but also hardware purchases, data migration and training. A branding requirement could later lead to furniture replacement or a temporary closure.

Prepare a separate cost schedule. Record four details against each obligation: one-off cost, recurring expense, compliance deadline and the party entitled to amend the requirement. Also note whether the amount is fixed in the agreement, supported by a quotation or still only an estimate.

It is useful to distinguish between three categories:

• Opening requirements: fit-out, equipment, initial training and opening stock.
• Ongoing operations: software, maintenance, mandatory inspections and refresher training.
• Future changes: brand refreshes, equipment replacement and the introduction of new services.

Ask existing franchisees which amendments to the manual have resulted in actual expenditure for them. Look beyond the amount: the notice given and the support provided for implementation are equally important.

Do not treat uncertain items as zero in your financing plan. Work with your accountant on a scenario in which a mandatory upgrade falls due earlier than expected. Check whether your available funds or financing would genuinely cover it.

4. Set out the amendment procedure in the agreement

Consistent standards across a franchise network may require network-wide improvements. The question is not whether the manual can change, but within what limits. Do not assume either that the franchisor has an unrestricted right to amend it or that you have a right of veto.

Ask a lawyer to examine the precise scope of any right to make unilateral amendments. Distinguish day-to-day operating details from new fees, substantial investments and other fundamental contractual changes. It is also worth checking whether the Hungarian Civil Code’s rules on standard contract terms apply.

In negotiations, you can seek advance written notice, a reasonable implementation period, a breakdown of costs and consultation before any substantial investment. Urgent changes relating to safety or legal requirements are best dealt with separately. Also set out the procedure for resolving disputed requirements, the deadline for remedying shortcomings and the possible consequences of a breach of contract.

Practical takeaway: before signing, make sure you have an identifiable version of the manual, a written cost schedule and a clear amendment procedure. Without these, you do not yet have a clear picture of the operational and financial obligations you are taking on.