Buying a franchise: agree a deadline for remedying breaches

When buying a franchise, check what happens if you make a mistake. A late report, an unpaid invoice and serious misuse of the brand are not equivalent events. Yet the agreement may treat them surprisingly similarly. A stable relationship within a franchise network therefore depends on a clear procedure: how you are notified of a breach, how long you have to put it right and how you prove that you have met your obligation.

1. Distinguish mistakes that can be put right from serious breaches

Before signing, find every clause that mentions a breach, a warning, suspension of services or termination of the agreement. Do not just review the termination section. Consequences may also be set out in provisions on payments, reporting, use of the brand and compliance with operating standards.

Create a table with four columns: obligation, breach, opportunity to remedy and consequence. This will help you spot whether the agreement imposes the same consequence for a minor administrative error as for conduct that seriously threatens customers or the brand’s reputation.

Ask the franchisor to clarify, in particular:

• breaches that require prior written notice;
• breaches you can remedy within an additional period;
• conduct for which the agreement allows immediate action;
• repeated mistakes for which the opportunity to put matters right no longer applies.

Terms such as ‘material breach’ or ‘conduct detrimental to the franchise system’ should come with a practical explanation. Ask for specific examples and check whether the list also covers obligations you have not even been given before signing. The aim is not to remove the franchisee’s responsibility, but to ensure a predictable and proportionate response.

2. Understand Slovenia’s legal framework

Slovenia has no dedicated franchise law, mandatory franchise register or specific statutory franchise disclosure document. A franchise agreement is an innominate contract — one not specifically defined as a distinct contract type in legislation — to which the general rules of the Slovenian Obligations Code (OZ) are relevant. Depending on the nature of the relationship, other rules also apply, including competition law and intellectual property legislation.

The OZ governs the performance of obligations and the consequences of non-performance. When assessing termination of a contract involving obligations on both sides, relevant considerations include whether timely performance is an essential term of the agreement and whether the party in default must be allowed a reasonable additional period to perform. There are also circumstances in which no additional period is required. It is therefore wrong to assume that every breach automatically entitles you to the same period to put matters right.

The parties have considerable freedom to structure their relationship, but they must not act contrary to mandatory legal rules or moral principles. The principle of good faith and fair dealing is also important. Do not assume that a clause is invalid simply because it is unfavourable to you.

Ask a lawyer to check how the contractual grounds for termination interact with the OZ. If the agreement is governed by foreign law, ask them specifically to assess which rules apply to remedying breaches. A franchise association’s code may provide a benchmark for responsible conduct, but it is no substitute for clear contractual rights.

3. Agree a workable notice procedure

A useful notice must say more than simply that you are ‘not operating in accordance with standards’. Propose that it include a description of the facts, the obligation breached, the action required to remedy the breach and the deadline for doing so.

Also agree how notices are served and when the remedy period starts. Will you receive a notice by email, registered post or through the IT system? Who is authorised to receive it? What happens if the employee who monitors the shared inbox is off sick? Unclear rules may mean that the deadline is running even though the person responsible has not yet dealt with the notice.

The time allowed should reflect the nature of the remedy. Preparing a missing report may take a very different amount of time from replacing equipment that requires an external service engineer. For such cases, propose the option of a remedial action plan confirmed in writing, with interim milestones. This is something to negotiate, not an automatic right.

Specify how completion will be confirmed: through proof of payment, documents, photographs or a further inspection. It is sensible to agree a deadline by which the franchisor must confirm that the breach has been remedied or explain what remains outstanding. Do not treat silence as confirmation unless that effect has been clearly agreed.

4. Check the consequences while you put matters right

An opportunity to remedy a breach is of little value if, in the meantime, you lose everything you need to operate. Check whether the franchisor can suspend supplies, block access to the IT system or withhold support as soon as it issues a notice. Ask which payment obligations remain in force during that period.

Request a clear distinction between urgent protective measures and measures that would prevent you from remedying the breach itself. If you need access to the system to put matters right, the contractual procedure must address that dependency too.

Pay particular attention to the rules on repeated breaches. Does only the same mistake count, or does any irregularity qualify? Over what period are breaches counted? Does a mistake still count if it was corrected on time? A broadly worded rule can undermine an otherwise reasonable remedy period.

Before signing, work through the procedure with your adviser using a specific example, such as a late report. Follow it from the initial notice through to confirmation that the breach has been remedied, and flag every ambiguity.

Practical takeaway: agree not just the length of the remedy period, but the entire procedure. You need to know what to put right, by when, what evidence to provide and on what terms you can continue operating in the meantime.