Buying a franchise: time to remedy a breach of contract

A late payment, a missed report or a failure to meet standards need not mean the end of your business. However, a franchise agreement may attach serious consequences to such failings. Before joining a franchise network, check that there is a clear procedure for giving notice of a breach of contract and allowing it to be remedied. The aim is not to avoid responsibility, but to prevent a fixable mistake from putting your investment at risk without a reasonable opportunity to put it right.

What Croatian law covers and what you need to agree in the contract

Croatia has no specific franchise legislation or dedicated mandatory system of pre-contractual disclosure for franchises. Franchise agreements are not separately regulated as a defined type of contract. They are governed by the Croatian Obligations Act, including its general rules on performance of obligations, termination for non-performance, damages, and good faith and fair dealing.

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 do not replace a clearly agreed procedure for dealing with day-to-day contractual failings.

Under the general rules of contract law, in certain circumstances a reasonable additional period for performance must be allowed before a contract can be terminated for non-performance. There are exceptions, for example where the deadline is an essential term of the contract or the circumstances indicate that the obligation will not be fulfilled even if more time is allowed. It is therefore unsafe to assume that you automatically have a right to a warning before every termination.

A lawyer should check how the contractual termination provisions interact with the statutory rules. Pay particular attention to wording that declares every obligation essential or makes any departure from the agreement grounds for immediate termination.

Classify breaches by seriousness

Ask for the agreement to distinguish between failings that can be remedied and conduct that justifies urgent action. Applying the same consequence to an administrative error and a serious safety risk is not a sound basis for a predictable relationship.

During negotiations, draw up three categories:

• Administrative failings: a late report, incomplete records or failure to supply a certificate.
• Operational and financial breaches: failure to meet service standards, failure to complete training or an overdue fee.
• Particularly serious breaches: fraud, deliberate disclosure of confidential know-how or conduct that poses an immediate risk to health and safety.

These are starting points for negotiation, not legally defined categories. Even an administrative failing can have serious consequences, depending on the circumstances.

For each category, specify whether the response will be a warning, a corrective action plan, a temporary protective measure or termination. Avoid vague grounds such as “damage to reputation” without a description of the conduct concerned and how the breach will be established. The franchisor needs to be able to protect the franchise network, but the franchisee must be able to understand what is expected of them.

Agree on notice and a realistic period to remedy the breach

A right to remedy a breach is of little value if the notice does not explain the problem or the time limit starts running before you can receive it. The agreement should specify the permitted delivery methods, the people responsible and when notice is deemed to have been received.

Ask for the written warning to include:

• a description of the specific failing and the relevant contractual provision;
• the facts or documents supporting the allegation;
• the steps needed to remedy the breach;
• the deadline and how the remedy must be evidenced;
• the consequences if the breach is not remedied.

The time allowed should reflect the action you need to take. Supplying an existing document is not the same as replacing equipment when you are waiting for a service engineer. Rather than accepting a single deadline for every situation, negotiate time limits suited to each type of breach, with the possibility of a justified extension where putting matters right depends on a third party.

For example, where equipment breaks down, you could agree on an immediate temporary protective measure, evidence that a service visit has been booked and a separate deadline for completing the repair. This procedure must not allow operations to continue in breach of safety requirements or other mandatory rules.

Define when the matter is closed

The agreement should explain who confirms that a breach has been remedied and within what timeframe. Otherwise, you could complete the required steps yet still face a claim that the warning remains in force. Provide for written confirmation or a clearly defined verification process, with an opportunity to raise a reasoned objection.

Pay particular attention to provisions on repeated breaches. If multiple failings allow termination without a further period to remedy them, define what counts as repetition: the same breach, a similar breach or any departure from the agreement. Also agree on the period within which earlier failings may be taken into account, rather than allowing them to accumulate indefinitely throughout the relationship.

Clarify who bears the cost of additional checks and on what basis. Ask for a comparable procedure for remediable breaches by the franchisor, such as failure to provide agreed support. This does not mean you can simply stop paying fees; that step requires a separate legal assessment.

Practical takeaway: before signing, write down four answers alongside each important obligation: how you receive a warning, how much time you have, what evidence you must provide to show that the breach has been remedied, and who confirms that the matter is resolved. Address any uncertainty in the agreement, not after the first mistake.