Franchise agreements: exit rules in Hungary

When developing an existing business into a franchise network, it is easy to focus solely on the launch. Yet before signing the first agreement, it is worth considering how the parties can part ways in an orderly manner. Clear exit rules protect the network’s reputation, the franchisor’s know-how and the independent franchisee’s investment. They do not signal mistrust: they address a foreseeable business risk in advance.

1. The Hungarian legal framework: franchising is a recognised contract type

Hungary has no standalone law covering every aspect of franchising, but this does not mean that franchise agreements are unregulated. Act V of 2013, the Hungarian Civil Code, expressly recognises franchise agreements, defining them in Section 6:376. The franchisee sells in its own name and for its own account: it does not operate as a branch of the franchisor.

Alongside the specific provisions on franchising, the Civil Code’s general rules on contracts also apply. When planning for the end of the relationship, particular care is needed to align the provisions on breach of contract, termination, final settlement and damages. The Civil Code contains a specific rule on terminating franchise agreements of indefinite duration; the ending of fixed-term agreements needs to be addressed separately.

There is no general mandatory state franchise register or dedicated franchise disclosure law either. However, pre-contractual duties to co-operate and provide information still apply. A code of ethics is not legislation: it may be relevant through membership obligations or contractual commitments. Exit terms should therefore be meaningfully negotiated, rather than tucked away in an appendix.

2. Distinguish between the different ways an agreement can end

Simply stating that “the agreement may be terminated” is not enough. Expiry, termination by mutual agreement and termination for a serious breach each represent a different business situation. For each, specify the notification method, deadlines, responsible parties and exit tasks.

The draft agreement should distinguish at least between the following:

• Expiry and renewal: when do discussions begin, on what terms can the relationship be extended, and what happens if no agreement is reached?
• Termination on notice: in what circumstances is it available, and how will the outlet continue to operate during the notice period?
• Termination for breach: which failures can be remedied, and which may justify swift intervention?
• Termination by mutual agreement: what separate exit agreement will set out the handover and final settlement arrangements?

A late report and a serious food safety incident cannot automatically be treated in the same way. For failures that can be remedied, it is sensible to provide for written notice, a reasonable period to put matters right and verifiable criteria for compliance. A lawyer should review whether the legal consequences are proportionate and enforceable.

Clarify how notices must be served, too. Specify where legally effective notices must be sent, who is authorised to issue them and how receipt can be proved. An argument on a messaging app is no substitute for a properly served termination notice.

3. Plan a workable operational exit

Leaving a franchise network does not necessarily mean that the franchisee’s business will close. The agreement must therefore make clear which rights end and which obligations survive.

Prepare an exit checklist covering signage, uniforms, packaging, websites, social media pages and online business listings. Specify who must remove or update each item, by when, at whose expense and how completion will be verified. Co-ordinate the ending of trade mark rights with the practical removal of branding.

Stock may require separate rules for perishable goods, own-brand products and goods that can be sold without brand restrictions. Do not assume there is an automatic buy-back obligation: if one is agreed, specify the required condition of the stock, the valuation method, transport costs and the timing of the handover.

Consider accepted orders, deposits, gift vouchers and complaints as well. An internal agreement between the parties does not, by itself, extinguish obligations towards consumers. Decide in advance who will communicate with customers and how outstanding matters will be resolved.

4. Treat data and know-how differently

A customer database is not simply an asset that can be handed back. Under the GDPR and Hungary’s Act on Informational Self-Determination and Freedom of Information, the parties must clarify their roles as data controllers, the lawful basis for transferring data, retention periods and the information to be provided to data subjects. Do not require an automatic data transfer without first assessing whether it would be lawful.

Create a separate checklist for withdrawing access to point-of-sale systems, booking platforms, email, cloud storage and the central customer relationship management system. The timing should allow the necessary reconciliation and settlement work to be completed without leaving the departing franchisee with unjustified access. Records that must be retained by law cannot be erased under a blanket deletion requirement.

Act LIV of 2018 is also relevant to the protection of trade secrets. Set out how confidential documents must be returned or deleted, and how confidentiality obligations will continue after exit. Post-termination non-compete clauses, however, require a separate competition law assessment: Hungary’s Competition Act and the applicable EU rules, including the conditions under Regulation (EU) 2022/720, must also be considered. Do not copy an unrestricted prohibition from another agreement.

5. Test the exit process before signing

Run a tabletop exercise for three scenarios: the agreement expires, the franchisee chooses to leave, or a serious breach occurs. In each case, work through the steps from notification to final settlement. Wherever there is no responsible party, deadline or verifiable requirement for completion, the agreement is still incomplete.

Practical takeaway: prepare a one-page exit checklist for your first agreement, then work with a lawyer to align it with the contractual provisions. The ability to part ways in an orderly manner is one of the foundations of a well-run franchise network.