Buying a franchise: how to negotiate a period to remedy breaches

A late report, an outstanding alteration to your premises or a failure to meet a standard does not necessarily mean the franchise relationship has broken down. Yet the agreement may allow the franchise to be terminated for just such a mistake. When joining a franchise network, do not review only your obligations. Find out whether you will have a genuine opportunity to put things right before losing the right to trade under the brand.

1. Distinguish statutory rules from contractual rights to remedy a breach

The Czech Republic has no specific franchise legislation. Franchise agreements are usually entered into as agreements not specifically defined by statute under Section 1746(2) of Act No. 89/2012 Coll., the Civil Code. Depending on the nature of the relationship, provisions on licensing and other types of contract, as well as competition rules, may also apply. There is no specific requirement to register franchise agreements, nor a standard statutory pre-contractual disclosure document; general pre-contractual duties do, however, apply.

The Civil Code governs, among other things, withdrawal from a contract following a material breach and the consequences of late performance. This does not mean that you will automatically receive the same additional period to remedy a breach before every franchise termination. The type of breach, the method of termination and the specific contractual provisions all matter.

An expressly agreed opportunity to remedy a breach reduces uncertainty. A lawyer should assess the provisions on obligations, late performance, termination on notice and withdrawal from the contract together. Finding one favourable sentence is not enough if another provision allows the relationship to be ended immediately for the same mistake.

Also ask for an explanation of the difference between ending the agreement and temporarily suspending certain contractual performance. An agreement that technically remains in force is of little help if you simultaneously lose access to something essential to day-to-day operations.

2. Classify breaches by severity and whether they can be remedied

When reviewing the draft, draw up a list of situations that could lead to termination. For each one, note whether it can be remedied, how quickly, and whether doing so also depends on the franchisor or a supplier.

A practical classification might look like this:

• Administrative errors: a missing report, an incomplete operational record or late submission of a document.
• Operational shortcomings: incorrectly labelled products or services, faulty equipment or failure to follow a specific working procedure.
• Late payment: an overdue amount, where it is important to distinguish between an oversight, a billing dispute and a long-term inability to pay.
• Serious risks: for example, conduct that endangers customers’ health or the deliberate disclosure of protected know-how.

This is not a statutory list, nor does it automatically determine the legal consequences. It is a basis for negotiating the agreement. For shortcomings that can be put right, ask for a notice and a reasonable opportunity to remedy them. Swift action may be justified in genuinely serious cases, but the grounds should be described specifically.

Pay particular attention to wording such as “any breach of the manual” or “damage to reputation”. Ask what conduct these phrases cover and whether every such instance really justifies immediate termination. Protecting the shared brand and giving franchisees predictable rules need not be mutually exclusive.

3. Agree a workable notice procedure and a realistic deadline

The opportunity to remedy a breach must work in day-to-day practice. The agreement should specify who sends the notice, to whom, by what means and when the remedy period starts. Check the rules on service of notices, including any circumstances in which a message is deemed received even if it has not actually been read.

Ask for the notice to include:

• a specific description of the shortcoming and the contractual obligation concerned;
• supporting evidence that allows the alleged breach to be checked;
• the required outcome of the remedial action;
• the deadline and method for demonstrating compliance;
• a warning about the consequences of failing to remedy the shortcoming.

A single short deadline for every situation is often impractical. Completing a report is different from repairing equipment that requires a service engineer. For more complex repairs, you can agree separate deadlines for starting and completing the remedial work, or an approved timetable with temporary protective measures.

If you need the franchisor’s consent, information or co-operation, also set out its response deadline and what happens if it fails to co-operate. Otherwise, you may bear the consequences of delays beyond your control. Simply reporting a problem does not, in itself, mean that an extension has been agreed; obtain confirmation of any change in a form you can prove.

4. Check what remedying the breach actually resolves

The agreement should also explain what happens once a mistake has been corrected on time. Negotiate a provision stating that the remedied breach will no longer, by itself, constitute grounds for termination under the relevant clause. Separately assess any claims for damages, interest or other agreed consequences: putting the problem right does not automatically extinguish them.

Examine repeated breaches particularly carefully. If the agreement allows the notice stage to be skipped when a breach recurs, you need to know whether this means the same mistake or any shortcomings, over what period, and whether earlier incidents must have been properly notified. A vague history of minor errors should not take the place of clear rules.

Also agree how successful remedial action will be confirmed. Keep the notice, your response, photographs, service reports or proof of payment, depending on the nature of the problem. If the parties disagree, ask for a procedure for prompt review; raising an objection does not stop the clock unless the agreement provides for this.

Practical takeaway: Before signing, test how the agreement works using three common mistakes. You should be able to establish who will notify you, how much time you will have and whether putting things right on time will genuinely prevent termination for that particular breach.