Franchise refurbishments: protect yourself against unexpected capital costs

The cost of buying a franchise does not end when you open. A subsequent requirement to replace counters, switch IT systems or carry out a complete brand refresh may require further capital, while the business’s revenue temporarily falls. A consistent appearance benefits the whole franchise network, but the financial terms of any refresh should be agreed in advance. This guide will help you prevent mandatory upgrades from becoming an open-ended financial commitment that is difficult to plan for.

1. Establish what changes can be required

When comparing brands, ask about upgrades to existing outlets. Do not just find out what fixtures and fittings you will need at opening: clarify what standards you may have to meet later. An impressive showcase outlet alone tells you little about the long-term investment burden.

Distinguish between the following:

• Maintenance: repairing worn equipment and keeping it in its original condition.
• Replacement: replacing equipment that has broken down or become unusable.
• Upgrading: replacing working equipment because of new technology or new network requirements.
• Brand refresh: changing furniture, finishes, decorations or exterior branding.

The agreement should not lump these together under a single, undefined obligation to “maintain the premises”. Replacing dangerous equipment calls for different rules on decision-making and who pays than a purely aesthetic change.

Ask for examples of previous refurbishments, preferably supported by documents: what changed, how much time franchisees were given, whether outlets had to close, and who paid for associated works. Past practice is no guarantee of future treatment, but it can indicate how predictable the network’s upgrade programme is.

2. Understand the legal basis for the requirement

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, specifically address franchise agreements. The Civil Code’s general rules on contracts also apply.

Under the Civil Code, franchisors have the right to give instructions concerning the production and sale of products, the provision and sale of services, and the protection of the network’s reputation. However, this does not automatically mean they can demand refurbishment at any time and at any cost. To assess a particular requirement, the contract terms, the subject of the instruction and the circumstances must be considered together.

It is particularly important to distinguish between implementing an obligation already agreed and creating a new one. Under the Civil Code, a contract may be amended unilaterally if the contract provides for this or legislation permits it. Have a lawyer review any provisions that automatically make future branding or technology changes compulsory.

Hungary has no general requirement for a franchise-specific pre-contractual disclosure document or a franchise register. However, duties to cooperate and provide information before entering into a contract still apply. The recommendation in Hungarian Franchise Association Guideline 2002/1 (IX.18.) to allow at least fourteen days for advance review is not a statutory waiting period. Do not leave refurbishment risks unresolved until after you sign.

3. Negotiate measurable limits on capital expenditure

Wording such as “upgrades must be carried out as necessary” does not provide a usable budget. Ask for provisions that make clear when changes can be required, what procedure must be followed and how much you may have to pay.

Your negotiation checklist should include:

• Advance notice: how far ahead of the works must you receive the final technical specifications?
• Frequency: how often can a complete brand refresh be expected?
• Cost cap: is there a ceiling for each project or for a specified period?
• Overruns: who approves and pays for costs above the original budget?
• Exceptions: what separate rules apply to urgent safety work or work needed to comply with the law?
• Individual flexibility: can you request a postponement or a technically equivalent alternative?

When agreeing a cost cap, specify whether it covers only equipment or also design, strip-out, delivery, installation and obtaining permits. Clarify how VAT will be treated and how any indexation will work.

The remaining term of the agreement is particularly important. If substantial investment is required shortly before it expires, you can seek a separate agreement on postponement, cost-sharing or the terms for continuing the franchise. These are not automatic franchisee rights: they offer predictable protection only if properly documented.

4. Calculate the full funding requirement

The contractor’s quote is only one cost element. Prepare a separate cash flow forecast for the period of the works, allowing for disruption to trading. Rent, wages, storage and temporary arrangements for serving customers may still require funding during refurbishment, even if turnover falls.

Consider at least three scenarios: work proceeding to schedule, delays to completion, and a full closure rather than a partial one. Do not confuse lost revenue with the actual cash shortfall: work with an accountant to calculate which expenses will continue and which will fall.

Obtain written confirmation from the franchisor of whether any fee reductions will apply while the business is closed for mandatory works. Also document the procedures for handover, rectifying defects and approving reopening. Do not base your financing plans on a verbal promise of support or a loan that has not yet been approved.

Practical takeaway: before signing, make sure you understand when refurbishment can be required, who pays and what timetable applies. If you cannot obtain verifiable answers, your purchase decision still carries an unknown capital expenditure commitment.