Franchise premises: align your lease with your opening

When joining a franchise network, it is easy to commit too soon to promising premises. Rent may already be due while the brand has yet to approve the location or the conditions for alterations remain unclear. Before buying a franchise, avoid treating the property search as a separate task: the lease, fit-out arrangements and franchise agreement must work together to make your planned opening possible.

1. Establish who is approving what

You need to distinguish between three separate types of approval. The franchisor assesses whether the location meets the brand’s commercial and visual identity requirements. The landlord consents to the use and alteration of the property. Compliance with regulatory requirements is a separate matter. None of these approvals replaces the others.

Ask the franchisor for written site approval identifying the property, the proposed activity and any conditions. Do not settle for a regional representative saying it “should be fine”. Establish who has authority to make the final decision, which documents they need and how long the approval remains valid.

Check that the landlord owns the property or is entitled to let it, and that the person signing has authority to act on their behalf. For a sublease, the duration of the head lease and permission to sublet also matter. Ask whether any condominium rules or restrictions on the building’s use could prevent you from operating.

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. Sections 6:376–6:381 of Act V of 2013, the Hungarian Civil Code, expressly address franchise agreements. The Civil Code’s general rules on contracts, including duties to cooperate and provide information, are also relevant.

For commercial premises leases, you must consider both the Civil Code and the applicable provisions of Act LXXVIII of 1993 on the letting of residential and non-residential premises. Local rules may also apply to premises owned by a municipality. Depending on the activity, further commercial, building, fire safety or food safety requirements may apply; these need to be checked for the specific site.

Hungary has no separate legislation imposing a general requirement for a mandatory franchise disclosure document. The provision in Hungarian Franchise Association Guideline 2002/1 (IX.18.) allowing at least 14 days to review documents before signing is professional guidance, not a generally applicable statutory waiting period. Nevertheless, there may still be a legal duty to disclose material circumstances. Have a lawyer review the two agreements together, rather than in isolation.

3. Make your commitments conditional

The key negotiating question is: what happens if the premises ultimately cannot be used for the intended purpose? Ideally, agree this before making any substantial non-refundable payment. Ask your lawyer to draft an appropriate condition or a clearly defined right to withdraw if an essential approval is not obtained.

Conditions should be objective and subject to deadlines. For example, specify:

• which document will confirm the brand’s final site approval;
• the physical condition in which the premises must be handed over;
• who will obtain the necessary consents and submit any required notifications;
• the deadlines for obtaining those consents and completing the notifications;
• how advance payments and security deposits will be dealt with if the project falls through.

The opening deadline in the franchise agreement should be linked to the handover of the premises. Ask for clear provisions covering delays by the landlord and delays in the franchisor’s approval of plans. Also clarify when recurring franchise fees begin: on signing, during training or at the actual opening. These dates are not necessarily the same.

4. Check the full cost of making the premises suitable

The right address and floor area are not enough. Commission a professional site survey based on the practical needs of the business. For a food business, for example, extraction, electrical capacity and drainage may be critical; for another outlet, cooling, loading facilities or accessible access may need closer examination.

Your budget should show separate lines for rent, service charges, any VAT charged, utilities, the security deposit, design work, alterations and pre-opening expenses. A security deposit is not necessarily a permanent expense, but it ties up money that is unavailable for running the business.

Set out in writing how the work will be divided between the landlord and your business. Who pays for upgrades to utility capacity? Who remedies existing defects? Who will own installed fixtures? If you negotiate a rent-free fit-out period, clarify which other charges remain payable during that time.

5. Create a coordinated opening checklist

Before signing, bring together all tasks, responsible parties, deadlines and documents confirming completion in a single table. Include handover of the premises, approval of plans, completion of works, completion of the necessary regulatory procedures and the brand’s authorisation to open.

Record the financial consequences alongside each potential delay. For example, if the owner’s consent for the shopfront works is missing, who must take action, and which fees remain payable in the meantime? Rely on commitments recorded in the relevant agreement, rather than verbal promises.

Practical takeaway: only make an unconditional commitment to lease premises once brand approval, lawful use and technical feasibility are clear, and responsibility for any remaining risks has been allocated contractually, with funds available to cover them.