Franchise site approval in Croatia: a practical guide

A good location is more than a busy address. When expanding an existing business into a franchise network, the premises must suit the operating model, investment requirements and the franchisee’s actual capacity. Before looking for your first franchise outlet, establish a site approval process: what you will check, who will make the decision and which commitments must wait until the checks are complete.

1. Turn experience from your existing outlet into criteria

Do not assume that premises will work simply because they resemble your existing outlet. Its performance may depend on loyal customers, favourable lease terms or the owner’s personal presence. For a new location, you need criteria that can be assessed independently of those advantages.

Draw up a brief profile of suitable premises. Separate essential requirements from desirable features. An essential requirement might be the feasibility of installing ventilation, delivery access or a layout that supports your workflow. Visibility from the main street may be an advantage, but its importance depends on whether customers drop in or book in advance.

Include the following in the profile:

• the operating, sales and storage space required;
• electrical, plumbing and other technical requirements;
• access for customers, staff and deliveries;
• the customer profile in the immediate area;
• the scope for installing signage and fitting out the shopfront;
• restrictions on opening hours, noise and the use of shared areas.

Specify the evidence needed for each essential requirement: a plan, photograph, document or specialist report. This ensures that the decision does not rest solely on the impressions of whoever visited the premises.

2. Check the financial viability of the specific location

An affordable rent does not, on its own, make premises suitable. Your calculations must include alterations to building services, fit-out, equipment, the deposit, shared costs, maintenance and the period during which rent is payable but the outlet is not yet generating revenue.

Prepare an estimate of the total initial investment and monthly expenditure. Clearly distinguish figures based on supplier quotations or the draft lease from those that are merely assumptions. Allow for working capital during the initial trading period too.

Then test a conservative scenario. What if the fit-out takes longer, customer numbers are lower or the premises require additional work? The franchisee needs to see how such variations affect their funding needs.

The franchisor’s approval of a site is not a guarantee of turnover or profit. Explain this distinction before a decision is made, but do not use it as a substitute for thorough checks. A responsible franchise network rests on documented assumptions, not on a promise that a good address will eliminate every business risk.

3. Separate franchise approval from legal requirements

Croatia has no dedicated law comprehensively governing franchising, nor a separate mandatory state register of franchises. A franchise agreement is an innominate contract — one not specifically defined as a contract type in legislation — to which the Croatian Obligations Act applies. Other general legislation, including the Competition Act, is also relevant, depending on the terms of the arrangement.

This does not mean, however, that an outlet can open solely on the strength of the franchisor’s consent. Internal approval of premises does not replace the statutory requirements for carrying on the business.

For retail businesses, the Trade Act sets out the requirements that sales premises, equipment and facilities must meet. Where a formal decision confirming compliance is required, the procedure is handled by the competent administrative authority of the relevant county or the City of Zagreb. Hospitality and other activities are subject to the relevant sector-specific regulations.

Before investing, check the permitted use of the premises, whether their use is lawful, and the applicable building, public health, fire safety and other requirements. Do not assume that the previous occupier’s documents automatically cover a new occupier, a different business activity or alterations.

Allocate responsibilities: the franchisee obtains the documentation, the franchisor checks that the premises fit the concept, and the appropriate specialists assess technical and legal requirements. Assign an owner and a deadline to each check.

4. Align the lease and franchise agreement before signing

Signing an unconditional long-term lease before the cost of works and the feasibility of opening are known is particularly risky. Instead, with legal advice, consider reserving the premises or using an agreement that takes effect only once clearly defined checks and approvals have been completed.

Compare the lease term with the term of the franchise agreement. If the lease ends first, the business may be left without premises. If it runs for longer, the franchisee may remain liable for obligations after losing the right to operate the franchise.

Also check who may carry out works, who owns any improvements made to the premises, whether signage requires consent and whether there is an obligation to restore the premises to their original condition. Do not assume that the lease can be transferred to another franchisee or to the franchisor: agree this with the landlord if it is important for business continuity.

5. Issue a written decision with clear conditions

Complete the process with a brief written record: approved, conditionally approved or rejected. List the documents reviewed, outstanding issues and reasons for the decision. For conditional approval, specify what must be resolved before work starts and what must be resolved before opening.

Make the approval specific to the premises, layout and intended use. Significant changes to the project should trigger a fresh review. Keep the decision and supporting documents so that both parties have the same understanding of what has been agreed.

Practical takeaway: before signing the lease, confirm three things: the premises fit the concept, the investment is financially viable and the legal requirements can be met. Only then does the location provide a sound basis for expanding the franchise network.