Buying a franchise: how to negotiate renewal rights

Before joining a franchise network, it is easy to focus on opening the business and overlook the agreement’s expiry date. Yet the business may only become stable as the end of the agreed term approaches. That is why, when buying a franchise, you should clarify whether you can continue trading under the same brand, who decides and on what terms. A promise of a long-term relationship is no substitute for a clearly defined contractual right to renew.

1. Distinguish a right to renew from an opportunity to negotiate

A clause stating that the agreement “may be renewed by mutual consent” does not guarantee that you can continue trading. It generally means that you will have to reach a fresh agreement. The same applies to a promise of priority in negotiations: priority is not the same as a right to require an extension.

For the franchisee, a more secure clause allows renewal if they apply on time and meet conditions specified in advance. Even then, simply using the phrase “right to renew” is not enough. The agreement must define the renewal term, the procedure for exercising the right and the grounds on which the franchisor may refuse renewal.

Identify the answers to the following questions in the draft agreement:

• Is the existing agreement extended, or is a new one signed?
• How long is the renewal term, and how many renewals are permitted?
• Is renewal the franchisee’s right, or does it depend on the franchisor’s discretion?
• Do the existing terms remain in place, or must you accept the franchisor’s standard agreement in force at the time?

Pay particular attention to the final question. The right to continue trading may be worth considerably less if you must also accept unknown future obligations.

2. Understand what Croatia’s legal framework protects

Croatia has no specific franchise law and no dedicated statutory system of mandatory pre-contractual disclosure for franchises. Franchise agreements are not separately regulated as a distinct type of contract. They are governed by the Croatian Civil Obligations Act, including its general rules on entering into and performing contracts, good faith and fair dealing, and liability for breach of obligations.

Depending on the nature of the relationship, the Croatian Competition Act, applicable European Union competition rules and intellectual property legislation may also be relevant. However, these rules do not, in themselves, give franchisees a general right to renew a franchise agreement.

The Franchise Register maintained by the Croatian Chamber of Economy (HGK) is an information resource, not a form of mandatory state approval for a franchise or a guarantee of contractual rights. Franchise industry codes of ethics are not laws; whether they apply should be checked against membership, commitments undertaken and the terms of the agreement.

Running the business properly and investing in the brand do not, in themselves, guarantee a further contractual term. If a renewal right has not been agreed, do not assume that you can secure renewal simply because you have met your obligations. Where the agreement is with a foreign franchisor, a lawyer should also review the choice of governing law and the dispute resolution arrangements.

3. Agree on verifiable conditions and a clear timetable

A condition such as “satisfactory performance as assessed by the franchisor” leaves considerable room for disagreement. Ask for verifiable criteria: payment of all amounts due, defined results from standards compliance checks, and the absence of specified material breaches of the agreement.

Distinguish between a serious, unresolved breach and a minor issue that has already been corrected. Negotiate a requirement for written notice of any issue that can be remedied, with a reasonable period to put it right, rather than allowing it to rule out renewal automatically. If renewal depends on sales performance, the measurement method and assessment period must be known in advance.

The renewal procedure should include:

• the deadline and method for submitting the franchisee’s renewal request;
• a requirement to acknowledge receipt;
• a deadline for providing the renewal terms and draft new agreement;
• a deadline for the franchisor to give a reasoned decision;
• a procedure for remedying shortcomings and resolving disagreements.

Do not allow your application deadline to fall before you can obtain information about the terms for continuing the business. Also agree on the consequences of a late response from the franchisor. Do not treat silence as consent unless there is a clear contractual or legal basis for doing so.

4. Assess the true cost of the renewal term

Renewal may involve a separate fee, administrative costs or acceptance of new financial terms. Ask for a list of these and how they will be calculated before signing the original agreement. If an amount cannot be fixed in advance, negotiate a clear formula or cap rather than an unspecified price “according to the current price list”.

The greatest risk may be an unrestricted obligation to sign the franchisor’s standard agreement in force at the time of renewal. Ask for advance agreement on which provisions may change and when you must receive the new wording. Your comparison must cover the entire agreement, not just the renewal fee.

Test the financial case for buying the franchise against two scenarios: the business ends when the initial agreement expires, or it continues on the agreed renewal terms. If recovering your initial investment depends on a renewal that the franchisor is not obliged to approve, that is a significant risk, not an assured continuation of the business.

Practical takeaway: before buying a franchise, ask for a renewal right defined in writing, verifiable conditions, a procedural timetable and predictable costs. Assess your investment against the guaranteed contractual term, not a verbal promise of a long-term relationship.