Franchise information packs: what should you provide before signing?

When turning a successful Hungarian business into a franchise network, your first franchisee needs more than a draft agreement. They need to understand what they are buying, how much capital they will commit and which responsibilities will remain theirs. This is the purpose of a pre-contract franchise information pack: a verifiable, consistent set of disclosures that distinguishes proven operations from future plans.

1. What is mandatory in Hungary, and what is professional guidance?

Hungary has no standalone, comprehensive franchise act, but it would be wrong to say that franchise agreements are unregulated. Act V of 2013, the Hungarian Civil Code, regulates this type of agreement as a franchise agreement (jogbérleti szerződés) in Sections 6:376–6:381. General contract rules also apply.

For pre-contract disclosure, the duty to co-operate and provide information under Section 6:62 of the Civil Code is particularly important. Even during negotiations, the parties must inform one another of material circumstances affecting the agreement. However, there is no universally mandatory franchise-specific disclosure template or separate franchise registration procedure. Sector-specific permits and other registration requirements may still apply.

The Hungarian Franchise Association’s guidelines recommend providing a franchise information pack and allowing candidates to review the agreement at least 14 days before signing. This is professional guidance, not a general statutory waiting period. The European Code of Ethics for Franchising is likewise a self-regulatory standard rather than legislation, although it may be relevant through membership obligations or contractual commitments.

When preparing the pack, you should also consider trade mark, trade secret and data protection requirements, as well as Hungarian and EU competition law.

2. Describe the system that actually exists

The information pack should not be an expanded sales brochure. Prospective franchisees need to base their decision on what the business can genuinely deliver and support.

The introductory section should clearly set out at least the following:

• The franchisor’s background: company name, registered office, ownership, operating history and contact person.
• The network’s current position: a separate account of company-owned and franchised outlets, and operating experience from the business serving as the model.
• The system being offered: products, services, target customers, premises requirements and the franchisee’s day-to-day responsibilities.
• Support from head office: initial training, opening assistance, ongoing advice and monitoring, with specific details of what each involves.
• Rights available for use: trade marks, software, manuals and proprietary know-how, together with material restrictions on their use.

If there are no franchisees yet, say so clearly. Results from a company-owned outlet do not automatically prove that an independent operator will achieve the same results elsewhere. Distinguish registered trade marks from pending applications, and check that the franchisor is entitled to license the proposed use.

Identify planned services separately. An IT system or purchasing discount promised for the future should not be presented as a network benefit already available.

3. Make financial disclosures traceable

The greatest misunderstandings usually concern total start-up costs and expected earnings, rather than the initial franchise fee. Prepare a cost schedule showing, for every item, who must be paid, when, on what basis and whether the amount includes VAT.

List the initial franchise fee, capital expenditure, opening stock, security deposit and initial working capital separately. Ongoing charges should include royalties, marketing contributions, software fees and the material costs of any mandatory services or purchases. For turnover-based fees, explain the calculation basis too.

If you present financial performance figures, specify:

• which outlet and period the data comes from;
• whether the figures are actual results or forecasts;
• which costs are included in the statement;
• how you have accounted for payment for the owner’s work;
• the location and operating assumptions needed to interpret the results.

A favourable rent at a company-owned outlet, or an owner working without pay, can distort comparisons. Include a less favourable operating scenario as well. A statement that “results are not guaranteed” does not, on its own, substantiate an unsupported promise of a return on investment.

4. Document the disclosure process too

A three-stage process is worth establishing: general introductory material, a detailed franchise information pack, then the draft agreement and associated schedules. A confidentiality agreement may be appropriate before sharing detailed business information, but it cannot replace the disclosures needed to make an informed decision.

You do not need to give every enquirer the complete operations manual immediately. A table of contents, a summary of requirements and controlled access can help protect trade secrets. However, material costs and obligations imposed on the franchisee must not be hidden in a document they can only see after signing.

Give every edition a date and version number. Record who received which documents and when, and maintain a question-and-answer log. Put answers in writing, and ensure material commitments also appear in the agreement. If fees, territory or the scope of support change during the process, provide the revised material and allow meaningful time for reassessment.

5. Check consistency before signing

At the final review, the advertising, information pack, financial model and agreement should all present the same offer. Pay particular attention to territorial promises, mandatory purchases, the scope for changing fees and the consequences of the agreement ending. Have the pack reviewed by a lawyer experienced in franchising, and its financial sections by an accountant or finance professional.

Practical takeaway: before recruiting your first franchisee, prepare a dated franchise information pack, a supporting financial annex backed by evidence and a documented disclosure process. Present anything you cannot yet substantiate as a plan, not as an established network capability.