Buying a Franchise in Croatia: Protecting Your Sales Territory

The promise that you will be the ‘only partner in town’ sounds attractive, but without a precise contract it may mean less than you expect. Another outlet, a delivery platform or the same brand’s online shop may target the same customers. Before joining a franchise network, establish what territorial protection actually covers, what exceptions apply and how your rights can be enforced in Croatia.

1. Distinguish between location, territory and exclusivity

The right to open an outlet at a particular address is not the same as an exclusive right to operate across a wider area. The agreement may allow you to operate at one location while leaving the franchisor free to open another outlet in the next street.

Before choosing a brand, clarify three terms:

• Approved location: the address at which you are allowed to operate.
• Allocated territory: an area in which you have certain sales or development rights, but not necessarily exclusivity.
• Protected territory: an area in which the franchisor makes explicit commitments, such as not opening its own outlet or appointing another franchisee.

Make sure the boundaries can be verified: use a map attached to the agreement, a list of postcodes or clearly specified administrative boundaries. Wording such as ‘the wider Split area’ leaves too much room for interpretation. If the territory is defined by distance from the outlet, specify whether this is measured as the crow flies or by road.

Then check who is bound by the restriction. Does it cover only the franchisor, or does the franchisor also undertake to ensure that its affiliated companies and other franchisees respect the protection? Are there exceptions for shopping centres, airports, kiosks or temporary sales outlets? Such exceptions can significantly affect the value of the territory on offer.

2. Include online sales and delivery

Territorial protection that refers only to physical outlets does not address digital channels. A customer may live within your territory, order through the central website and receive a product from another outlet. The agreement should therefore deal separately with orders, delivery and the associated revenue.

Work through several specific scenarios with the franchisor:

• A customer in your territory orders through the brand’s online shop.
• A delivery platform displays two outlets from the same network.
• The central sales team agrees a service contract with a business customer that has multiple locations.
• Another franchisee targets advertising at residents of your territory.

For each case, agree who handles the order, who bears the costs of delivery, complaints or returns, and whether you receive a fee for providing the service locally. If the revenue belongs to head office, do not count it as your own simply because the customer comes from your town.

For example, a central campaign might offer collection from your outlet. Without a clear arrangement, you could bear staffing and storage costs without receiving any sales revenue. The solution is an agreed fee or another clear allocation model, supported by reports that allow you to check the calculations.

3. Check what Croatian and EU rules allow

Croatia has no specific franchise law or dedicated mandatory pre-contractual disclosure regime for franchises. A franchise agreement is generally an innominate contract — one not specifically defined as a contract type in legislation — governed by the Croatian Obligations Act, including the principles of good faith and fair dealing and the rules on performance of obligations and liability for breach of contract. Depending on the issue, the Companies Act and the Trade Mark Act may also be relevant.

Territorial protection is particularly affected by the Croatian Competition Act and, where an agreement may affect trade between EU Member States, Article 101 of the Treaty on the Functioning of the European Union. Commission Regulation (EU) 2022/720 on the block exemption for vertical agreements is also relevant within the EU framework.

This means that exclusivity does not permit every form of sales restriction. The rules distinguish between active sales, such as deliberately targeting customers in a particular territory, and passive sales, such as responding to an unsolicited customer enquiry. Certain restrictions on active sales may be permitted, whereas restrictions on passive sales are generally particularly problematic, subject to specified exceptions. Nor may the effective use of the internet simply be prevented.

A lawyer should therefore review the specific distribution model, market conditions and wording of the restrictions. An absolute ban on ‘all sales outside the territory’ is not a safe contractual shortcut. The Croatian Chamber of Economy’s (HGK) Franchise Register is an information resource, not a mandatory state register or confirmation that territorial clauses are lawful.

4. Agree how territory changes and breaches will be handled

Protection may be conditional on minimum turnover, the opening of additional locations or other performance targets. These conditions should be measurable, with a clear review period and a warning procedure before rights are lost.

Check whether the franchisor can unilaterally reduce your territory. If so, ask for clearly defined grounds, advance notice and a reasonable period to remedy any shortcomings. Clarify what happens if a missed target results from a supply disruption for which the franchisor is responsible.

The procedure for dealing with a breach of territorial protection by the franchisor is equally important. Agree who should receive a complaint, the deadline for a response and how the breach will be remedied. With your legal adviser, consider appropriate contractual remedies, such as a fee reduction, and the conditions for claiming damages. A verbal promise from a development manager is no substitute for an enforceable obligation.

Practical takeaway: before signing, mark the territory on a single map and use a short table to list sales channels, exceptions and the associated revenue entitlements. If any scenario leaves it unclear who may sell and who earns the revenue, the territorial protection still needs further work.