Franchise disclosure: what should you provide before signing?

When you turn an existing business into a franchise network, prospective franchisees need to understand more than the brand: they also need to know what obligations and risks they are taking on. That is the purpose of a pre-contract disclosure pack. It is neither a marketing brochure nor a substitute for the contract, but a structured basis for making a decision. Prepare it before recruiting your first franchisee, so that every subsequent applicant receives verifiable information on a consistent basis.

1. Understand the Hungarian legal framework

Hungary has no general requirement under a dedicated franchise law to provide a pre-contract disclosure document with prescribed contents. Nor is there a general requirement for franchisors to register with a public authority. This does not, however, mean that franchising is unregulated or that franchisors have unlimited freedom.

Act V of 2013 on the Civil Code specifically recognises franchise agreements in sections 6:376–6:381. The general rules governing contracts also apply. The duty to co-operate and provide information under section 6:62 of the Civil Code is relevant from the negotiation stage: the parties must inform each other of material circumstances affecting the contract.

The Code of Ethics published by the Hungarian Franchise Association is a professional and ethical standard, not legislation. Whether it applies must be assessed alongside membership obligations and contractual commitments. Business notification requirements and operating licences for particular services are separate matters: neither, in itself, validates the quality of a franchise concept.

Practical implication: do not simply copy a mandatory form used abroad. Work with a lawyer to prepare a pack that has been checked against Hungarian law and explains the material circumstances of your own offer.

2. Bring the facts that influence the decision together in one pack

Structure the disclosure pack around the prospective franchisee’s questions. Who will they be contracting with? What will they receive? What must they pay for? What remains their own responsibility? On what terms can the relationship continue?

At a minimum, cover the following topics in separate, easy-to-follow sections:

• The franchisor and the concept: identification details of the contracting business, its operating history, and a clear distinction between company-owned and franchised outlets.
• The rights being granted: the scope of permission to use the brand and know-how, and the basis of the franchisor’s entitlement to grant those rights.
• The full picture on payments: initial and ongoing fees, mandatory contributions, and the main amounts payable to the franchisor and third parties.
• The services actually provided: initial training, opening assistance, ongoing support and any limitations on these services.
• The main obligations and restrictions: purchasing requirements, personal involvement in the business, territorial terms, duration, renewal and termination.

Do not highlight only the benefits. If particular support carries an additional charge, or a significant service is still being developed, say so where you describe the benefit. Also make the detailed draft agreement and the supporting documents needed for the decision available for review.

3. Separate established facts from plans

Experience gained from running your own outlet is valuable, but it is not the same as the track record of an established franchise network. If you do not yet have any independent franchisees, say so. Do not suggest that you have already resolved the challenges of franchisee operations across multiple locations.

Keep internal supporting evidence for every important claim. Outlet numbers should be backed by records, operating history by dated documents, and the scope of support by an approved service description. When presenting financial information, specify the period, the type of outlet concerned, the assumptions used and which costs the figures include.

Use consistent labels: historical fact, planned service, illustrative example, condition to be verified by the prospective franchisee. This helps prevent a development plan from quietly becoming a promise to deliver.

For example, rather than saying ‘we provide a central customer service function’ when it is not yet operating, describe the current support arrangements and the planned change separately. Contractual service commitments must reflect your actual capacity, not your hopes for future growth.

4. Allow genuine time and opportunity for checks

Disclosure is useful only if applicants can ask questions, assess the figures and consult advisers before committing. Hungary has no general, franchise-specific statutory waiting period between delivery of the disclosure pack and signing. Nevertheless, establish a meaningful internal review period that reflects the complexity of the transaction.

As good practice, provide the pack before any binding preliminary commitment or payment. If you use a separate preliminary agreement, clearly explain its costs, refund terms and implications as well.

Do not use confidentiality as a blanket reason to withhold information needed for the decision. You can use a confidentiality agreement and controlled access for sensitive operational details, but applicants must understand what they are signing up to.

Give applicants the opportunity to submit questions in writing. Record material answers and, if they change the offer, update the relevant documents accordingly. After a significant change, allow a further opportunity for review.

5. Keep evidence of who received which information

Assign responsibility for keeping the disclosure pack up to date. Give every edition a date and version identifier. Maintain a delivery record for each prospective franchisee, listing document names, versions, delivery dates and any subsequent additions.

An acknowledgement of receipt provides evidence of delivery. It does not make inaccurate claims true, nor does it replace the actual disclosure of material circumstances. Avoid relying on a general declaration that the applicant has ‘received all necessary information’ without an itemised document list.

Before signing, check whether anything material has changed: for example, whether a fee has been revised, a key supplier is no longer available, or the promised support has changed. Do not leave new information until the next edition of the disclosure pack.

Practical takeaway: prepare a version-controlled disclosure pack, an itemised delivery record and a written question-and-answer log. Together, these three tools help your first franchisee make an informed decision about joining the network.