Buying a franchise: protecting yourself against the cost of changing standards

When buying a franchise, it is easy to compare the initial fee and fit-out costs, but harder to predict the cost of future changes to standards. New furniture, a replacement till system or an outlet refurbishment may become compulsory during the contract term. A healthy relationship within a franchise network depends on agreeing in advance who approves these changes, who pays for them and how long the franchisee has to implement them.

1. Establish what the franchisor is allowed to change

Franchise agreements often refer to an operations manual that the franchisor updates from time to time. This is understandable: shared standards need to keep pace with customer needs, technology and regulations. Problems arise when the right to update the manual also becomes an unrestricted right to impose new investment requirements.

Before signing, distinguish between three categories of change:

• Routine operational changes, such as how products are displayed or how complaints are handled.
• Changes needed to comply with regulations, whose scope depends on the particular business activity and outlet.
• Commercial and technological changes, such as a new visual identity, equipment or IT system.

For each category, check whether the agreement allows unilateral changes, requires advance notice and permits changes to the franchisee’s financial obligations. Pay particular attention to wording such as “all future standards are binding on the franchisee” or “the franchisee shall bear all costs of compliance”.

Also ask for a clear rule governing the relationship between the agreement and the manual. A useful clause would state that the manual cannot, on its own, alter agreed investment limits, fees or other essential rights. This does not prevent the brand from developing; it distinguishes day-to-day instructions from new financial obligations.

2. Check previous changes and the true total cost

Rather than asking a general question such as “Are you planning a refurbishment?”, request details of the network’s most recent major changes. How much notice was given? Did they apply to every outlet? Did the franchisor contribute to the cost? Were newly opened locations given a transition period?

Speak to existing franchisees, particularly those who have been operating long enough to have experienced at least one major change. Their experiences do not guarantee how the franchisor will act in future, but they can reveal differences between the wording of the agreement and the day-to-day working relationship.

The cost of a change is not simply the figure on a contractor’s quotation. Your estimate should include:

• dismantling, removal and any write-off of existing equipment;
• delivery, installation, alterations to the premises and any necessary approvals;
• data migration, system integration and new subscriptions;
• additional staff training;
• closure or reduced operating capacity while work is carried out.

For example, replacing a till system may require new devices, data migration and changes to accounting processes. Before accepting the obligation, ask for an estimate of the overall impact, not just the licence fee.

If the franchisor announces a new concept, ask for written confirmation of whether your initial fit-out will already meet its requirements. Avoid paying for a completely new fit-out that you will soon have to change again.

3. Agree investment limits and a notification procedure

There is no universally acceptable amount for future investment. The limit should reflect your business plan, the contract term and your ability to recoup the investment. Work with a lawyer and an accountant to prepare a specific proposal rather than relying on the phrase “reasonable costs”.

Focus negotiations on five questions:

1. Cost limit: is there a cap on compulsory investment over an agreed period, and what counts towards it?
2. Frequency: how often can the franchisor require a major refurbishment or the replacement of equipment that is still functional?
3. Notice: must written notification include a technical description, the reasons for the change, a cost estimate and an implementation deadline?
4. Exceptions: how will urgent safety requirements or regulatory changes be handled while meeting statutory deadlines?
5. Resolving disagreements: is there a procedure for reviewing costs and agreeing a workable timetable?

Make specific provision for investment towards the end of the contract term. If little time remains before expiry, a major refurbishment may not make economic sense. Possible contractual solutions include postponement, a contribution from the franchisor or linking the investment to an extension of the franchise relationship agreed in advance.

Where a change requires the outlet to close, clarify whether fixed fees remain payable during that period and whether business targets will be adjusted. Do not assume any of this: the arrangement should be recorded in the agreement or a signed addendum.

4. Distinguish between statutory and contractual protection

Croatia has no specific franchise law or mandatory pre-contractual disclosure regime specifically for franchises. A franchise agreement is treated as an innominate contract, meaning one not expressly defined as a separate contract type in legislation. The contractual relationship is governed by the Croatian Civil Obligations Act, including the principles of good faith and fair dealing and the rules on performance of obligations, liability and general terms and conditions.

Depending on the nature of the change, the Croatian Competition Act, applicable EU competition rules and regulations governing the particular business activity, premises or equipment may also be relevant. The absence of a specific franchise law does not mean that every contractual clause is permissible.

The European Code of Ethics for Franchising is a self-regulatory standard, not Croatian law. Whether it applies should be checked by examining the franchisor’s membership of the relevant association and its contractual commitments. The Franchise Register maintained by the Croatian Chamber of Economy (HGK) is an information resource, not a mandatory government licence or a guarantee that the terms are fair.

Practical takeaway: before signing, establish what can be changed, how much you may be required to invest and the deadline for doing so. Clear rules on changes to standards protect your investment and support a lasting relationship within the franchise network.