Buying a franchise: what does a code of ethics guarantee?

A franchisor says it operates in line with the European Code of Ethics for Franchising. That may be a good sign, but it is not enough to make a confident investment decision. Before joining a franchise network, check which code it refers to, why it is obliged to comply and what you can do if the promised standards never make it beyond the promotional material.

The code is not a dedicated franchise law

Croatia has no dedicated law comprehensively regulating franchising. A franchise agreement is an ‘innominate contract’: its rights and obligations are not defined by a separate statutory framework for that type of contract. It is governed by the Croatian Civil Obligations Act, including rules on entering into and performing contracts, good faith and fair dealing, and liability for damages.

Depending on the nature of the relationship, the Croatian Competition Act, applicable European Union competition rules, the Croatian Trade Mark Act and other legislation relevant to the particular business may also apply. Freedom of contract therefore does not mean that every contractual provision is permissible.

Croatia does not require a dedicated pre-contractual disclosure document for franchises with standardised content and a delivery deadline, as some other countries do. This does not, however, remove the general duties that apply during negotiations or justify misleading descriptions of a business opportunity.

The European Code of Ethics for Franchising, issued by the European Franchise Federation, is a self-regulatory instrument for the franchise sector, not Croatian law. It can help shape and interpret the relationship, but it does not replace mandatory legal rules or, in itself, guarantee a return on investment.

Check who has actually committed to the code

A statement such as ‘we comply with European standards’ is not the same as a verifiable obligation to follow a particular code. Ask for its full title, edition and text, along with a written explanation of the basis on which it binds the franchisor.

Before signing, ask four questions:

• Is the company you are contracting with a member of an association that requires its members to comply with the code?
• Does that membership cover the actual company signing the agreement, or another company within the same group?
• Is there a complaints procedure, and who can use it?
• What are the possible consequences of breaching the code under that association’s rules?

Verify membership directly with the organisation concerned. A logo in a presentation or an old certificate is not enough to establish that membership is current.

If you are negotiating with a local holder of network development rights, do not assume that the foreign brand owner’s obligations automatically apply to that business too. Check who is making the promise, who will provide the service and against whom you could enforce your rights. The reputation of the wider network is no substitute for clear accountability on the part of your contractual counterparty.

Turn ethical principles into measurable obligations

The code emphasises standards of responsible conduct, including fair presentation of the franchise opportunity and the provision of information to prospective franchisees. For a buyer, the key is to give those principles practical substance. A general promise of transparency is much harder to check than a clearly defined obligation.

For example, if the franchisor says it allows enough time for an informed decision, agree when you will receive the final draft agreement and its attachments, and how much time you will have for professional review before signing or making a payment. In Croatia, do not treat this as a specific statutory deadline for franchises: it is a safeguard you negotiate.

If the franchisor refers to fair presentation of business performance, ask for written confirmation of whether the figures shown are actual results, forecasts or illustrative examples. Ask it to explain which outlets and period the figures cover, and which costs they include.

Discuss with a lawyer whether the agreement should expressly identify a particular edition of the code and include an obligation to comply with it. Clarify:

• which obligations apply to the franchisor and which to the franchisee;
• how a possible breach should be reported;
• what the franchisor must do following a justified complaint;
• what contractual rights are available if the breach is not remedied.

Do not rely solely on a statement that the code is ‘an integral part of the relationship’. What matters more is understanding exactly what that wording allows you to do and how it fits with the rest of the agreement.

Distinguish an association complaint from a legal claim

A complaint to a trade association and a claim for damages are not the same thing. Depending on its rules, an association may review a member’s conduct and take disciplinary action under its membership rules. Do not assume that it can award damages, set aside an agreement or order a refund of fees.

Keep the offer, presentations, emails, the code supplied to you and the franchisor’s written answers. If a problem arises, these records may help establish what was represented and agreed. A breach of an ethical principle does not automatically entitle you to terminate the agreement; the legal consequences depend on the circumstances, the contract and the applicable law.

Practical takeaway: treat the code as a useful standard for responsible franchising, but build your protection on a verified obligation on the franchisor’s part, precise contractual terms and a clear route to enforcing your rights.