Renewing a franchise agreement: what should you agree before buying?

When buying a franchise, it is easy to focus on opening the business. Yet before you sign the initial agreement, you need to know the terms on which you can continue trading once it expires. The long-term value of belonging to a franchise network depends heavily on whether renewal is an enforceable right, a conditional option or simply a matter for future negotiation. Do not leave this to verbal promises.

1. Distinguish a right to renew from an opportunity to negotiate

The phrase “the agreement may be renewed” is not enough on its own. It could mean that you are entitled to continue if you meet specified conditions, or that the franchisor is free to decide whether to enter into a new agreement. These two situations offer fundamentally different levels of business security.

Hungary has no separate, comprehensive franchise act, but that does not mean the relationship is unregulated. Act V of 2013, the Hungarian Civil Code, expressly recognises and regulates franchise relationships as a named type of contract, known in Hungarian as a jogbérleti szerződés. General contract rules also apply, including provisions on co-operation and the duty to provide information. A lawyer should review the specific agreement’s terms and legal classification.

You have no general statutory right to require a franchisor to renew a fixed-term franchise agreement on unchanged terms. You should therefore ask:

• Does the agreement renew automatically, or must you give formal notice?
• Do you need to sign a new agreement to continue?
• How many renewals are possible, and for how long each time?
• In what circumstances can the franchisor reject your request?

The European Code of Ethics for Franchising is a professional self-regulatory standard, not Hungarian legislation. If the franchisor refers to it, clarify what obligations it accepts through membership or under the contract, and what these mean specifically for your renewal.

2. Make sure the conditions are clear in advance and can be verified

It is understandable that renewal should depend on meeting operational requirements: reliable operations and protecting a shared reputation are in the franchise network’s interests. Uncertainty arises when the agreement refers only to “satisfactory performance” or the franchisor’s “satisfaction”, without setting a benchmark.

Ask for a precise definition of the obligations against which you will be assessed. For outstanding fees, for example, it matters whether a disputed bill or a late payment that has already been settled could prevent renewal. For quality requirements, the assessment method, review period and acceptable results should be clear.

It is worth negotiating a contractual right to notice and an opportunity to remedy shortcomings: the franchisor should identify any shortcoming in writing, specify the action required and allow a reasonable, pre-agreed period to put it right. This is a protection to negotiate, not an automatic entitlement in every renewal situation.

Pay particular attention to whether the franchisor can change the requirements immediately before renewal. Ask for advance notice and time to adapt. A requirement to give reasons for the decision, together with an internal review process, can also help prevent a misunderstanding from costing you the opportunity to continue.

Speak to existing franchisees who have already been through renewal. Ask when they received the terms, what documents they were asked to provide and whether the final offer differed from their earlier expectations. Their experience is a useful cross-check, but it is no substitute for your own contract.

3. Calculate the full cost of continuing

Renewal is not necessarily free. There may be a separate renewal fee, costs associated with a new agreement or changes to ongoing fees. Include these as separate items in your financial plan before buying, rather than treating them as unexpected expenses at the end of the term.

Ask for written confirmation of how the renewal fee is calculated: as a fixed sum, according to a specified formula or using the fee schedule in force at the time. Clarify what tax is included, when payment is due and whether any advance payment will be refunded if renewal does not go ahead.

A clause requiring you to continue only on the franchisor’s then-current standard agreement poses a particular risk. In that case, not only the price but also the support, obligations and liability provisions may change. Ask for a provision specifying how far in advance you will receive the new draft and which core terms will remain unchanged.

Prepare two financial scenarios: one based solely on the guaranteed initial term, and another that includes renewal and its expected costs. If the investment only makes financial sense with an extension that is not yet guaranteed, treat this as a distinct risk in your buying decision.

4. Set a renewal timetable when you sign

Even a favourable renewal right can lose its value if you miss a contractual deadline. Record when and how you must give notice: to whom it must be addressed, which contact details to use and what proof of delivery is required. Informal discussions do not necessarily replace the prescribed notice.

The timetable should cover the franchisor’s deadline for responding, delivery of the new terms, any outstanding information or documents to be supplied, and signing. Do not assume that silence means acceptance, or that continuing to trade after expiry automatically preserves your existing rights.

Align this timetable with the decision points for your lease and financing commitments. The aim is to avoid having to commit to maintaining the business for a longer period while the future of the franchise relationship remains uncertain.

Practical takeaway: before buying, work with a lawyer to prepare a one-page renewal summary covering your entitlement, conditions, fees, deadlines and the decision-making process. Clarify anything you cannot complete unambiguously before signing the initial agreement.