Buying a franchise: how to negotiate a period to remedy breaches

A late report, a missed payment or a failure to meet standards should not leave a franchisee uncertain about whether they can continue trading. Before buying a franchise, check whether the agreement provides a process for putting things right before termination. Protecting the brand matters to both parties in a franchise network, but the agreement should distinguish between a mistake that can be corrected and a breach that makes continuing the relationship unacceptable.

1. Classify breaches by severity and whether they can be remedied

Start with all the provisions that allow the franchisor to terminate the agreement. Do not review only the clause headed ‘Termination’: grounds for termination may also appear alongside provisions on payments, reporting, operating standards or confidentiality. Compile a single list and note whether each ground carries a right to prior notice.

The key is to establish whether a particular failure can actually be remedied. A missing report can usually be submitted. Faulty equipment can be repaired or replaced. A trade secret that has been disclosed, however, cannot always be made secret again.

Prepare three categories for negotiations:

• administrative failures that can be corrected quickly;
• operational shortcomings requiring works, purchases or additional training;
• particularly serious breaches for which termination without a remedy period is proposed.

For the final category, ask for specific descriptions. A phrase such as ‘any conduct detrimental to the brand’s reputation’ is too broad unless it is clear which circumstances justify the most serious consequence. Simply labelling something a ‘material breach’ does not explain what happened or why it cannot be remedied.

Also check whether an employee’s mistake is automatically grounds for terminating the entire relationship, or whether the agreement allows for remedial training and changes to procedures.

2. Agree what the notice must contain

A right to remedy a breach is worth little if you do not know what the franchisor requires of you. Propose that the written notice specify the contractual obligation, a description of the identified failure, the available evidence, the corrective action required and the consequences of failing to act.

For example, a statement that an outlet ‘does not meet standards’ is not specific enough to help you organise corrective action. The particular shortcoming must be identified, along with the standard against which the remedy will be assessed. If there is an inspection report, ask for it to be supplied with the notice.

Next, agree how notices will be served. The agreement should specify permitted channels, contact addresses and how receipt will be proved. In particular, check when the remedy period starts: on sending, on receipt or on some other event defined in the agreement. Avoid ambiguities that could mean you only learn of the notice after the deadline has passed.

Also agree whom you should contact with an objection or query. Do not assume that the ability to challenge an incorrectly identified failure automatically suspends the deadline. If you want an objection to pause or extend the remedy period, this must be expressly provided for.

3. Match the remedy period to what you can realistically do

A single deadline for every breach is easy to draft but often impractical. Submitting a document and replacing equipment when you are waiting for a spare part are not comparable tasks. Ask for different remedy periods or a clear process for setting them according to the nature of the breach.

For more complex remedies, propose an option to agree a remedial action plan. This may include interim safeguards, works commissioned, the people responsible and verifiable completion dates. An extension should not depend solely on the franchisor’s unexplained discretion: specify in advance the documentation and conditions required for approval.

The agreement should also answer the following questions:

• Can the outlet continue trading while the breach is being remedied?
• Who checks the corrective action and pays for a further inspection?
• What evidence will demonstrate that the corrective action has been completed?
• How long does the franchisor have to confirm that the breach has been remedied?

Where health or safety is at risk, certain activities may need to be suspended immediately. Distinguish this protective measure from final termination of the agreement.

Negotiate repeated breaches separately. If a repeat failure removes the right to remedy, define the period over which breaches are counted and whether they must be the same or comparable. Otherwise, several unrelated minor mistakes could become a continuing threat of termination.

4. Check how the agreement interacts with Croatian law

Croatia has no franchise-specific legislation and no mandatory standardised pre-contractual franchise disclosure document. A franchise agreement is an innominate contract, meaning it is not a specifically defined contract type under Croatian law. The Civil Obligations Act (Zakon o obveznim odnosima) is central to the performance of obligations and termination.

The Act governs termination for non-performance, including rules on allowing an additional reasonable period for performance and circumstances in which such a period is not required. It is therefore incorrect to say that every breach necessarily requires an additional period to put things right, but equally, contractual wording does not automatically justify every termination. The nature of the obligation, the circumstances and the applicable statutory provisions all matter.

Give your lawyer a specific brief: check whether the agreement allows termination for a minor failure, whether exceptions to the notice requirement are justified, and how the consequences of remedying a breach on time are addressed. If the agreement is with an overseas franchisor, ask them to check the agreed governing law as well.

Practical takeaway: before signing, secure a precise description of the breach, notice whose delivery can be proved, a realistic remedy period and a clear way to confirm that the breach has been remedied. A verbal promise that the agreement ‘will not be terminated over minor issues’ is no substitute for these provisions.