Franchise rebranding: who pays for compulsory refurbishment?

A consistent look across a franchise network is valuable, but the bill for the next rebrand could fall on your business. The investment schedule presented when you join may not include counter replacements, new furniture or a complete refit required later. Before buying a franchise, check what changes the franchisor can require, how much notice you will receive and how the costs will be shared.

1. Distinguish maintenance from new investment

Replacing a worn-out chair is not the same as replacing all your furniture, even though it is still usable, to meet a new brand standard. Yet the agreement may blur this distinction, for example by requiring you to keep the premises compliant with current brand standards at all times.

Ask for separate definitions covering at least three types of work:

• Routine maintenance: preserving the original condition and keeping equipment in working order.
• Replacement due to wear and tear: replacing equipment that has become unusable or no longer fit for purpose.
• Centrally mandated upgrades: introducing a new look or operating method even where existing equipment is still usable.

Also ask whether any changes are already planned that could affect your premises shortly after opening. Request a written response covering both proposed developments under consideration and those already approved. Records of previous refits can help you understand how the process works in practice, but they do not guarantee future costs.

For newly fitted-out premises, negotiate an initial period during which you cannot be required to carry out another complete refit solely for branding reasons. Clearly distinguish any exceptions relating to safety or legal requirements.

2. Check the basis of the franchisor’s right to require changes

Hungary has no standalone, comprehensive franchise act, but it does have specific legislation: Sections 6:376–6:381 of Act V of 2013, the Hungarian Civil Code, govern franchise agreements. General contract rules also apply, including provisions on co-operation, disclosure and amendments to agreements.

There is no general statutory cap on franchise refurbishment costs or universal timetable for refits. Your specific obligations must therefore be assessed against the agreement and the documents incorporated into it. The franchisor’s right to issue instructions or carry out checks does not, on its own, determine what investment it can require you to make or on what terms.

The Hungarian Franchise Association’s code of ethics is not legislation. Its contractual requirements do, however, address the need to define the franchisor’s right to develop the system and change its methods. This is no substitute for precise wording in your own agreement.

Have a lawyer review the extent to which a requirement to ‘comply with current standards’ constitutes an obligation accepted in advance, and when a separate agreement would be needed. It is particularly important to clarify the relationship between the agreement and any manual that the franchisor can amend. The ability to update a manual should not remain an ill-defined power to impose unlimited new investment requirements.

3. Calculate the full cost, not just the building work

The cost of a refit goes beyond equipment and labour. Prepare a separate investment appraisal showing both direct expenditure and the temporary financial impact on operations.

Include design, strip-out, delivery, installation, waste removal, any necessary permissions and preparations for reopening. Show wages, rent and other fixed expenses that continue during closure as separate items. Do not automatically equate lost revenue with lost profit: account for any costs saved during that period too.

Clarify what will happen to the equipment being replaced. Can you sell it, will anyone buy it back, or must it be altered before reuse because it carries the brand’s markings? Discuss the accounting treatment of the book value of still-usable equipment with your accountant.

Request at least two scenarios: a modest refresh and a more substantial refit. Do not assume that an upgrade will automatically increase turnover. Ask separately for the business rationale and the evidence supporting it, and assess affordability using cautious revenue assumptions.

4. Set limits and a workable timetable

Rather than accepting a vague ‘reasonable deadline’, ask for a specific notification and consultation process. Any written requirement should come with a technical specification, cost estimate and implementation timetable. Make clear when the agreed deadline starts to run and what happens if the necessary plans arrive late.

Points to negotiate may include:

• limits on the frequency or cumulative cost of refits;
• separate written approval or cost-sharing for major investment;
• phased work instead of full closure;
• justified extensions where regulatory, landlord or construction issues cause delays;
• advance agreement on how franchise fees will be handled during the refit.

These are negotiable contractual arrangements, not automatic entitlements. Also specify who will certify that the completed work meets the requirements, against which criteria and within what timeframe. This can reduce the risk of having to alter a refit you have already paid for because of a further requirement that was not disclosed in advance.

If the proposed investment is substantial relative to the remaining term of the agreement, request a separate discussion of its financial implications. Do not rely solely on a verbal promise when committing to expenditure that would require a longer operating period to recoup.

Practical takeaway: before signing, prepare a one-page refurbishment checklist: who can require changes, how often, at what cost and by what deadline. Clarify anything the agreement does not make clear before joining the network.