Buying a franchise: how to negotiate a contractual right to renew

When buying a franchise, it is easy to assume that you will be able to continue trading after the agreement expires, provided you pay your fees on time. However, good relationships within the franchise network are no substitute for a contractual right. Renewal may depend on a further fee, the franchisor’s assessment or your acceptance of an entirely new agreement. Before signing, check whether you have an actual right to continue or merely an opportunity to negotiate again.

1. Distinguish a right to renew from a promise to negotiate

Terms such as “option to renew”, “priority on renewal” and “right to renew” do not necessarily have the same effect. What matters is the wording of the clause as a whole, particularly the conditions under which the franchisor may refuse to continue the relationship.

If the agreement says it may be renewed “by mutual consent”, do not treat this as a guarantee. Such wording generally means that a further agreement is needed. Relying on assurances that the franchisor routinely renews other franchisees’ agreements is equally risky.

Ask for the agreement to answer the following questions clearly:

• Who initiates the renewal process, and how?
• Is the franchisor obliged to agree to renewal once you meet the stated conditions?
• How long is the renewal term, and how many renewals are permitted?
• Does the existing agreement continue, or must a new one be signed?
• What exactly are the permitted grounds for refusal?

The aim is not an unconditional promise, but a process that can be checked. A franchisor may reasonably require compliance with its standards, but the franchisee should be able to establish in advance what they must do.

2. Turn renewal conditions into verifiable criteria

Phrases such as “satisfactory performance” or “full compliance with the system” leave considerable room for interpretation. Ask for a list of criteria, an explanation of how they will be checked and the period the assessment will cover.

For example, a requirement to keep payments up to date should distinguish between an overdue unpaid amount and an invoice disputed on reasonable grounds. For compliance with standards, clarify whether a previous minor failing that has already been remedied can justify refusing renewal.

Propose a process under which the franchisor provides a written list of shortcomings before making a decision and allows an agreed period to remedy any that can be put right. Also specify how the franchisor will confirm that the shortcomings have been remedied. This reduces the risk of an issue you knew nothing about emerging just before expiry.

Pay particular attention to any requirement to sign the “then-current standard agreement”. This could mean accepting different fees, fewer rights or additional obligations. Request a draft well in advance and agree beforehand which key provisions will remain protected on renewal. If the franchisor will not accept this, factor that risk into your purchasing decision.

3. Agree a decision timetable and establish the full cost of renewal

A deadline for submitting a renewal request is not enough if the franchisor has no deadline for responding. You could apply in good time yet still be waiting for a decision while having to order stock, plan staff schedules or take on other commitments.

Agree a coordinated timetable covering the request, provision of terms and a draft agreement, assessment against the criteria, correction of shortcomings and the final written decision. Specify the permitted method of serving notices and how receipt will be evidenced. Do not assume that silence means consent; any intended effect of silence should be legally reviewed and clearly set out.

Request a separate breakdown of all renewal costs:

• the renewal fee and when it falls due;
• any inspection or additional training costs;
• investment required as a condition of continuing;
• changes to ongoing fees after renewal.

Check whether any advance payment is credited towards the final fee and when it will be refunded if renewal does not go ahead. Do not pay solely on the basis of a non-binding indication that the relationship will continue.

It is also useful to test the process with a hypothetical scenario: imagine that the agreement is about to expire, there is one issue that can be remedied, and you have not yet received a new draft. Can you establish from the wording who must act, by when and with what consequences? If not, the process is not clear enough.

4. Check your rights under Croatian law

Croatia has no specific franchise legislation or mandatory standardised pre-contractual franchise disclosure document. A franchise agreement is an innominate contract, meaning it is not a separately defined contract type under Croatian law. The Civil Obligations Act (Zakon o obveznim odnosima) is central to contractual obligations, including rules on interpreting contracts, fulfilling obligations and acting in good faith.

Franchisees have no general automatic right to renewal simply because they have invested in the business or performed their contractual obligations properly. Whether you can require the relationship to continue depends on the agreed provisions and the applicable law. Good faith matters, but it is no substitute for a precisely drafted obligation to renew.

Other relevant rules also apply to the relationship, including the Competition Act (Zakon o zaštiti tržišnog natjecanja) and, where applicable, European Union competition rules. Signing a new agreement does not automatically make every provision in it lawful.

Before buying, ask a lawyer to check whether the renewal clause creates an enforceable right or merely an obligation to hold discussions. Practical takeaway: secure clear criteria, a deadline for the decision and a known renewal cost before factoring continued trading into your long-term plan.