Launching a Franchise: Legal Requirement or Ethical Principle?

When developing an existing business into a franchise network, it is easy to rely on older guides or template agreements. Yet these often blur the distinction between legal obligations, ethical expectations and optional business arrangements. Before commissioning an agreement, clarify where each important requirement comes from, who it applies to and what happens if it is breached. This is not simply legal housekeeping: it lays the foundations for secure relationships with future franchisees.

1. Franchising is not unregulated: understand the Hungarian legal framework

Hungary has no dedicated franchise act comprehensively governing the establishment and operation of franchise networks. However, this does not mean that franchise agreements lack specific recognition in Hungarian law. Act V of 2013, the Hungarian Civil Code, regulates the franchise agreement — known in Hungarian as a jogbérleti szerződés — as a distinct type of contract.

In essence, the franchisor grants rights to use or exploit specified copyright, industrial property rights or protected know-how. The franchisee uses these rights to carry out the agreed activities in its own name and for its own benefit, and pays a fee.

Alongside the Civil Code’s specific provisions, general contract rules also apply. These include rules on co-operation, the provision of information and the consequences of breach of contract. Other legislation may also affect the agreement’s terms, including competition law, trade mark law and rules protecting trade secrets.

At the outset, prepare a brief description of exactly what the franchisee will receive: use of the brand, operational know-how, support, and perhaps goods or access to software. A lawyer can then assess the legal substance of the relationship. The agreement’s title alone does not determine which rules apply to it.

2. Distinguish between legislation, codes and commitments

The requirements governing a franchise network can come from different sources. It is worth recording these in separate columns from the planning stage.

• Legal requirement: its application cannot simply be excluded by an internal rule. However, parties may depart from some of the Civil Code’s contractual provisions; the limits of that freedom require legal assessment.
• Ethical requirement: the European Code of Ethics for Franchising is a framework for industry self-regulation, not Hungarian legislation. Compliance may matter, for example, because of membership of a franchise association or an express commitment to follow it.
• Contractual commitment: an obligation created by agreement between the parties. It may be enforceable even if legislation does not specifically require it.
• Internal recommendation: operational guidance whose binding force depends on how it relates to the agreement with the franchisee.

For example, a promise of ongoing support should not remain merely a reference to an ethical principle. Define the assistance you will provide, through which channels and on what terms. This allows the franchisee to understand what to expect and the franchisor to plan its resources.

If the agreement includes a general obligation to comply with a code, clarify which version it refers to and how subsequent amendments will be handled. An unachievable commitment is no less risky simply because it began as a well-intentioned industry principle.

3. Check how current and applicable your sources are

Older Hungarian franchising guides may still state that franchise agreements are not specifically regulated under civil law. Under the current Civil Code, this is no longer a sound starting point. Similar caution is needed with earlier competition regulations and commentary referring to the previous Civil Code.

The fact that legislation is available online does not prove that it is still in force. Legal databases may also display historical versions. An old regulation on franchise agreements therefore cannot automatically be relied on to justify the terms of an agreement being drafted today.

For every substantive legal reference, have the following checked:

• whether the provision will be in force when the agreement is due to be signed;
• whether it actually applies to the activity and relationship concerned;
• whether subsequent changes affect its interpretation;
• whether directly applicable EU law must be considered alongside Hungarian rules.

A competition law review is particularly important if the draft includes sales territories, purchasing restrictions or non-compete clauses. Act LVII of 1996 and, where applicable, EU competition law are relevant here. A general reference to a ‘franchise exemption’ is no substitute for checking the particular clause.

4. Prepare a legal requirements checklist before deciding to launch

Hungary has no general requirement for franchise systems specifically to register with a public authority, nor a standard mandatory format for franchise-specific pre-contractual disclosure. This does not remove general duties to provide information or any notification and licensing requirements associated with the actual business activity.

For example, Act LXXVI of 2009 on the General Rules for Taking Up and Pursuing Service Activities does not introduce franchise registration. Whether it applies must be assessed by reference to the service provided and the scope of the Act, together with any specific rules governing that activity.

Prepare a simple table with these fields: requirement, legal basis or commitment, business concerned, person responsible, date checked and evidence of compliance. Clearly distinguish between obligations that fall on the franchisor and those that fall on the independent franchisee. For uncertain items, ask for a specific legal answer rather than a general sign-off.

Practical takeaway: before recruiting your first franchisee, classify every significant requirement as a legal obligation, an ethical principle or a commitment you have chosen to make. Build your franchise network only on verified legal foundations and promises you can actually fulfil.