Franchise upgrades: who decides and who pays for change?

In your own business, you usually decide whether to introduce a new till system or brand identity, and you bear the consequences. In a franchise network, the same change affects independent business owners’ investment, staffing arrangements and profitability. So before signing up your first franchisee, it is worth establishing a process for change: what is mandatory, who can decide, who pays and how much time is allowed for the transition. The aim is not to hold back progress, but to make it predictable.

1. Distinguish routine updates from capital investment

Not every change can be treated as a simple update to the operations manual. Refining a working procedure places a different burden on franchisees from replacing all their equipment. If both fall under the same broad authorisation, disputes can easily arise over how far the franchisor’s decision-making powers extend.

Establish three clearly defined categories of change:

• Operational refinement: for example, changing the sequence of an existing task without significant additional cost.
• Planned upgrade: for example, introducing new software, a branding element or equipment used to deliver a service, requiring training or investment.
• Urgent action: for example, a change needed to address a safety risk or new legislation.

For each category, specify who makes the decision, how franchisees will be notified and how the change will be implemented. Do not classify a change solely by its cost to the franchisor: the franchisee’s working time, lost sales and the remaining useful life of existing equipment also matter.

Prepare an initial schedule of planned upgrades too. Anything already planned when a franchisee joins should not be announced later as an unexpected obligation. Clearly distinguish confirmed decisions from options still under consideration.

2. Let the agreement provide the legal framework for change

Hungary has no single standalone law covering every aspect of franchising, 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 govern franchise agreements. The Civil Code’s general contractual provisions also apply.

Under Section 6:191 of the Civil Code, unilateral amendments to a contract require a contractual clause or statutory authorisation. The right to update the operations manual should therefore not automatically be treated as unlimited authority to impose new fees, substantial investments or other fundamental obligations. Nor does the right to issue instructions, on its own, replace the need for a proper legal basis for amending the agreement.

Work with a lawyer to set out which requirements may be detailed in the manual, the scope for unilateral changes and when a separate agreement is needed. The relationship between the agreement, its schedules and the manual should also be clear.

There is no general franchise-specific registration requirement with a public authority, nor a prescribed format for pre-contractual disclosure. However, the Civil Code’s duties to cooperate and provide information still apply. The code of ethics is a form of industry self-regulation, not legislation. Changes must also remain consistent with Hungarian and applicable EU competition rules.

3. Allocate the full cost of the transition

The purchase price of new equipment is only part of the cost. The proposal supporting the decision should also cover installation, training, data migration, subscriptions, temporary parallel operation and any downtime. Identify which costs are confirmed and which are still estimates.

Then distinguish the benefits to the franchisor from those arising at outlet level. If an upgrade primarily simplifies head-office administration, it should not be taken for granted that the franchisee will bear every cost. Possible solutions include funding by the franchisor, cost-sharing or a phased rollout; the terms should be agreed in advance.

Separate provisions are needed for recently joined franchisees who have barely used the equipment previously required of them. Consider a temporary exemption, a credit towards the replacement or a later replacement date, where this is compatible with safe operation.

Do not present expected savings as a promise. Explain the assumptions behind the calculations, and also assess what happens if the benefits arrive later or are smaller than expected.

4. Test and consult before rollout

Test the upgrade in a company-owned outlet first, preferably under operating conditions similar to those faced by franchisees. A software demonstration at head office does not prove that it will work at peak times, with new staff and existing equipment.

Before testing, define the acceptance criteria: which workflows must function, which faults would prevent rollout and who decides whether to proceed. Have a rollback plan in case the transition fails.

Consulting franchisees does not necessarily mean giving them a veto. Its purpose is to help the franchisor identify local obstacles early, such as different IT systems, staff shortages or equipment that is difficult to move. Document the feedback and the decisions made in response.

5. Give every change a clear rollout plan

Franchisees should not have to piece together scattered emails to work out what is mandatory. Prepare a short change summary for every significant upgrade, covering:

• the purpose of the change and its contractual basis;
• the outlets affected and any exceptions;
• who bears the costs and the implementation deadline;
• arrangements for training, support and reporting faults;
• how completion will be confirmed and when the subsequent review will take place.

Urgent procedures must also be documented. Record why a short deadline was necessary and which temporary measures will reduce the burden on franchisees. After rollout, check the actual costs and results; use these findings to improve the plan for the next upgrade.

Practical takeaway: before your first franchisee joins, write up one specific upgrade you expect to introduce, including its full cost and decision-making process. If this does not make clear who decides, who pays and what happens if there is a delay, your framework for managing change still needs refining.