The Franchising Contract in Hungary

Franchising hasn’t been used much, as a contract, , however in recent years it has gradually established itself, especially for the most famous and renowned brands. In particular, Hungary has good potential for the development of franchising networks in the clothing sector, which are highly appreciated by Hungarian consumers, especially by young people.

Today, the franchise agreement is defined by the Hungarian Civil Code as a contract under which a person called franchisee undertakes to produce and supply (in his name and on his behalf) the goods and services by virtue of a concession in favor of a subject called franchisor, through the use of intangible assets such as the image of the brand, know-how, etc., owned by the latter. The franchisor is required to guarantee the franchisee the right to use his own brand for commercial purposes and to market his products using the commercial formula he has already tested on the market. In exchange, the franchisee undertakes to periodically pay the franchisor a sum of money calculated on his turnover. Furthermore, the franchisor undertakes to guarantee the franchisee the uninterrupted use of the aforementioned intangible assets for the entire duration of the contract, while the franchisee takes all necessary measures to protect the know-how made available to him.

The rules of the reformed civil code apply to all contracts concluded after March 15, 2014.

Hungarian Civil Code: discipline of the franchising agreement

In any case, even before the recent reform, the Hungarian Franchising Association had long ago recognized both the Statute and the Code of Ethics of the European Franchising Federation which had been incorporated into the "Hungarian Code of Ethics".

On the basis of these acts, the Hungarian Franchising Association, over the years, has issued many provisions classifiable as soft law instruments, of which n. 2002/1 "Regulation on the obligation to provide information on the content of the system before signing".

It should be noted, however, that the new Hungarian Civil Code, unlike European laws and many countries outside the United States, does not provide for specific information and pre-contractual disclosure obligations for the franchisor and towards the franchisee. Therefore, from this point of view, it could be advantageous for a franchisor who intends to create a Franchising network in Hungary to choose Hungarian law as the law applicable to contractual relationships. The Hungarian civil code, to date, only provides for the obligation to act in good faith in making reports or notifications and some specific security obligations regarding the network created.

Another peculiarity introduced by art. 6: 381 of the Civil Code consists in applying to the franchise agreement, in the event of withdrawal, the same minimum notice period provided for by Directive 653/86 / EC on commercial agency, which is summarized as follows:

  • one month's notice for the first year of the contract;
  • two months for the second year;
  • three months for the following years.
Regardless of the revised provisions of the Civil Code, the rules provided for by the Community legislation on the limits to the conclusion of vertical agreements for violation of the competition rules, which remain imperative, also apply to the Franchising contract in Hungary. To date, therefore, those who want to create a Franchising network in Hungary will have to keep in mind that both some mandatory provisions of European origin and the Hungarian mandatory rules on Franchising apply to the contract.

It is emphasized that a foreign company that intends to create a franchise network in Hungary will have to insert a clause in the contract which provides for the exclusive competence of an arbitration board competent to hear and resolve any disputes that may arise.

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