Ending a franchise agreement: a guide for franchisors in Croatia

When turning an existing business into a franchise network, it is easy to focus on opening new outlets and overlook their potential departure. Yet the rules for ending the relationship should be in place before the first agreement is signed. They protect service continuity, the network’s reputation and both parties to the agreement, particularly where the franchisee has its own lease, employees, stock and obligations to customers.

1. Distinguish between expiry, termination on notice and termination for breach

Croatia has no specific franchise law, and franchise agreements are not separately regulated as a defined type of contract. Their formation, performance and termination are assessed primarily under Croatia’s Civil Obligations Act. Depending on the nature of the relationship, the Competition Act, Trade Mark Act and Trade Act may also be relevant, alongside consumer protection and personal data protection rules.

Expiry, termination on notice and termination for breach are not interchangeable concepts. A fixed-term agreement may end when its agreed term expires. Termination on notice brings an ongoing relationship to an end subject to the applicable statutory and contractual conditions. Termination for non-performance relates to a breach of obligations and is subject to legal requirements that need to be checked.

For each situation, specify:

• who serves notice and how;
• which time limits apply and when they start to run;
• whether there is an opportunity to remedy the breach;
• when the right to use the franchise branding ends;
• which obligations survive the end of the agreement.

Do not assume that every mistake justifies immediate termination. A lawyer should ensure that the contractual consequences reflect the nature of the breach and comply with the Civil Obligations Act.

2. Introduce a procedure for remedying breaches

A franchisor expanding an existing business for the first time will often want tight quality control. However, a vague clause allowing termination for any instance of ‘reputational damage’ creates uncertainty rather than clear rules.

Distinguish between operational failings that can be corrected and serious situations requiring an urgent response. A late report is not the same as the unauthorised disclosure of a trade secret or conduct that puts customer safety at risk. Even in serious cases, do not assume that every measure is permissible without legal review.

A practical procedure includes written notice, a description of the identified problem, supporting evidence, the corrective action required and, where applicable, a reasonable deadline. This should be followed by a check that the action has been taken and a written conclusion. Also record any support the franchisor has provided, such as additional training, technical assistance or clarification of standards.

This procedure is not merely preparation for a dispute. It enables consistent treatment of franchise network members and helps distinguish a lack of knowledge from persistent non-compliance. The agreement should be clearly linked to operational standards, without relying on an unrestricted right for the franchisor to change material obligations later.

3. Prepare a plan for the final day of franchise operations

Ending the agreement is not the same as closing the outlet. The franchisee may continue operating its own business if it has the legal and commercial basis to do so, but it must no longer use the franchisor’s rights without authorisation.

Alongside the agreement, prepare an exit checklist identifying who is responsible for each task and the relevant deadlines. Cover the removal of external signage, updates to digital profiles, withdrawal of promotional materials, return of loaned equipment and removal of access to internal systems. Revoke access in a coordinated way, preserving any records that either party is legally required to retain.

Make specific arrangements for stock. Will the franchisor buy back certain goods, on what terms and using which valuation method? Is there an agreed sell-off period, with permission to use the branding during that time? A buy-back obligation should not be left as an unspoken expectation.

Also review leases, equipment agreements and supply contracts. The franchise agreement does not, by itself, transfer the lease or release the franchisee from obligations to suppliers. Taking over an outlet therefore requires a separate review of the necessary consents and contractual relationships.

4. Protect customers, data and confidential know-how

Before the relationship ends, list outstanding orders, advance payments, gift vouchers, complaints and any other unfulfilled commitments to customers. For each item, establish which party has the contract with the customer, who will fulfil the obligation and how the customer will receive clear notification. An internal arrangement between franchisor and franchisee cannot, by itself, remove consumers’ statutory rights.

The customer database does not automatically transfer to the franchisor. Under the General Data Protection Regulation and Croatia’s Act on the Implementation of the General Data Protection Regulation, you need to check the parties’ roles, the purpose and lawful basis of any transfer, the information to be provided to data subjects and the retention periods. Distinguish between business records, access to software and personal data: a right to one does not automatically confer a right to the others.

Agree on the return or deletion of manuals, access credentials and confidential know-how, with exceptions for the lawful retention of records. If you intend to include a post-termination non-compete clause, have a specialist review it separately under Croatian law and applicable EU rules. Such a restriction is not automatically permissible simply because it has been signed.

5. Rehearse an exit before granting your first franchise

Work through a hypothetical outlet exit with your team. Can you identify who will notify customers, remove branding, settle outstanding balances and revoke access? If the answers depend on the owner improvising, the plan is not yet ready.

The agreement, checklist and technical access permissions must be consistent with one another. Review them with a lawyer, an accountant and the person responsible for data protection.

Practical takeaway: before expanding your franchise network, draw up a workable exit plan. A well-structured relationship also sets out in advance how it will end — without unnecessary harm to customers and business partners.