Ending a Franchise in Croatia: Planning the Exit

When preparing an existing business for franchise expansion, it is easy to plan how an outlet will open while overlooking how it might leave the network. Yet agreeing the exit arrangements in advance protects customers, the brand’s reputation and both parties to the contract. An exit plan is more than a termination clause: it is a workable schedule of tasks that starts by clearly establishing why and when the agreement will end.

1. Distinguish the legal end of the agreement from the operational exit

Croatia has no specific franchise law or dedicated statutory regime requiring a pre-contractual franchise disclosure document. The contractual relationship is governed primarily by the Croatian Obligations Act, including its rules on performance of obligations, termination and liability for damages. Depending on the issues involved in the exit, the Trade Mark Act, the Competition Act, applicable EU competition rules, and consumer protection and personal data protection legislation may also be relevant.

The European Code of Ethics for Franchising can serve as a standard of good practice, but it is not Croatian law and does not replace mandatory legal requirements.

Work with a lawyer to address separately expiry of the agreed term, termination by mutual agreement, termination on notice where permitted, and termination for non-performance. Do not reduce these to a single sentence allowing the franchisor to ‘end the relationship immediately’. For each scenario, check the conditions that must be met, how notice must be served, any periods allowed for remedying a breach, and when the legal consequences take effect.

The date on which the right to operate the franchise ends is not necessarily the date on which all obligations between the parties are completed. Final settlement of accounts, handling complaints and retaining certain records may continue for longer. Make this distinction explicit so that neither party assumes that ending the agreement also extinguishes earlier obligations.

2. List everything that carries the franchise identity

While you are still running your own outlet, make a list of every place where the name, trade mark and distinctive elements of the business appear. This will later form the basis of the franchisee’s exit checklist.

Include at least:

• external and internal signage, menus, price lists, packaging and uniforms;
• websites, local social media profiles and business listings on mapping services;
• email addresses, telephone numbers and access to shared systems;
• manuals, templates, training materials and copies of these;
• equipment and materials owned by the franchisor and supplied for use by the franchisee.

For each item, record the owner, the person responsible for taking action, the deadline, the cost and the evidence required to confirm completion. Evidence might include a photograph of removed signage, a handover record or confirmation that access has been revoked.

Do not assume you have the right to take over every digital profile or enter the franchisee’s premises unilaterally. Establish the necessary rights, permissions and technical feasibility in advance. For shared systems, plan how access will be separated so that you protect know-how without preventing lawful record retention or the fulfilment of obligations to customers.

3. Agree how to handle stock, money and customers

Stock often becomes the first practical problem during an exit. Distinguish goods that the franchisee can lawfully continue to sell from materials whose use would suggest that the outlet is still part of the franchise network. The appropriate approach depends on the type of goods, trade mark rights and the contract; do not assume that all items must either be bought back or destroyed.

If you wish to offer a buy-back option, agree eligibility criteria covering the condition of the goods, remaining shelf life, proof of purchase, valuation method and transport costs. Any sale of remaining stock after the agreement ends should undergo a separate legal review, with its scope clearly defined.

The final settlement should cover fees due, outstanding invoices, advance payments and any security provided. Specify what information each party must supply and how they can dispute the calculation. Do not leave the return of a deposit subject to a vague promise that it will happen ‘after checks’.

Make a separate list of outstanding orders, bookings, gift vouchers, customer advance payments and unresolved complaints. Establish who sold the product or service to the customer and who remains responsible. An internal agreement between franchisor and franchisee cannot simply remove customers’ statutory rights. Transferring obligations or data to another outlet requires an appropriate legal basis and, depending on the circumstances, the customer’s consent.

4. Test the exit plan before signing the first agreement

Run a tabletop exercise using your own outlet: imagine that the right to use the brand ends on a specified date. Can the accounts team, IT support and outlet manager complete every task without improvising? In particular, check who controls access and how long it takes to remove physical signage.

Prepare a short exit report template. Use it to record completed tasks, outstanding obligations, the people responsible and upcoming deadlines. The final communication to customers should be factual: explain that the outlet will no longer operate under the brand and provide a contact for outstanding matters, without either party blaming the other.

If you include a post-termination non-compete clause, obtain a specific legal review. Such a restriction is not automatically permissible; its terms and the applicable competition rules matter.

Practical takeaway: before offering your first franchise, prepare contractual provisions governing how the relationship ends, an exit checklist and a final settlement template. A smooth exit is planned while both parties still want to work together.