Franchise equipment: should you buy or rent before opening?

Machinery, refrigerators, computers and other equipment may be essential to running a franchise without belonging to the franchisee. Before choosing a brand, find out how this equipment will be provided and what obligations come with using it. In franchising, an apparently lower initial investment may come with rental payments, mandatory maintenance and return costs that need to factor into your decision.

1. Identify what you will own and what belongs to third parties

Ask for a list of the equipment needed to operate the business, identifying how each item will be supplied: purchase, rental, a free loan arrangement (known in Brazil as comodato) or another type of agreement. Do not settle for sales phrases such as “setup included” or “fully equipped premises”. These do not explain who owns the equipment or how long you will be entitled to use it.

For purchases, check who the seller is, which documents confirm the purchase and whether any conditions affect the transfer of ownership. For rentals, identify the owner renting out the equipment and the rental term. Under a comodato arrangement, use of the equipment is free, but there may still be costs and responsibilities relating to its upkeep, transport and return.

For each item of equipment, record:

• The owner and the company responsible for supplying it.
• Its model, capacity and condition.
• The document authorising its use and the period it covers.
• Who is responsible for installation, maintenance and removal.
• What happens to it when the contractual relationship ends.

Do not assume that paying the franchise fee transfers ownership of the equipment to you. This depends on the documents governing the arrangement. If any equipment is second-hand, request its maintenance history and a technical assessment appropriate to its importance to the business.

2. Cross-check the terms against the COF and the contracts

Brazilian Law No. 13,966/2019, known as the Franchise Law, governs business franchising in Brazil. Article 2 requires the Franchise Disclosure Document, known locally as the Circular de Oferta de Franquia (COF), to state the estimated cost of equipment and its payment terms. It also requires clear information about recurring charges, including equipment rental, explaining how they are calculated and what they cover.

This allows you to carry out a straightforward check: does the equipment presented in the sales proposal match what is described in the COF? Is rental included among the recurring expenses? Is the company that will receive the payments identified in the relevant documents? Are there any additional charges required to get the equipment up and running?

Read the separate purchase, rental or free loan agreements as well. Check whether their terms align with the franchise agreement and what happens if one ends before the others. Do not assume that ending the franchise automatically cancels a rental agreement with another company.

The COF must be provided at least ten days before you sign the franchise agreement or preliminary agreement, or pay any fee to the franchisor or a person or company connected with it. This is a minimum advance disclosure period, not a deadline for completing your review. Ask for clarification before making commitments.

3. Compare costs over the period of use

Buying and renting should not be compared solely on the basis of the initial outlay. Choose the same assessment period for both, in line with the contract term, and add up the costs of each option actually available within the franchise network.

For a purchase, consider the price, delivery, installation, maintenance, spare parts and any replacement costs. If paying in instalments, include financing charges. Treat any potential resale value cautiously: specialist equipment may have few buyers, or continued use outside the network may require authorisation.

For rental, add up monthly payments, scheduled price adjustments, installation, maintenance not included in the rental fee, usage charges and removal costs. Record any security deposit separately: it ties up cash at the outset, although it may be refunded under the agreed terms.

Also ask whether you are required to upgrade equipment during the contract and who pays for this. A machine in good working order may cease to meet the brand’s required standards before reaching the end of its useful life.

The best option is not necessarily the one with the lowest upfront cost. Compare total cost, available cash and the risk of disruption. If the network permits only one arrangement, use the calculation to assess whether the proposal is viable, rather than assuming you have a choice.

4. Establish who handles breakdowns and how returns work

An essential piece of equipment breaking down can stop sales even when rental payments are up to date. Check who handles fault reports, which services are included and whether the contract specifies a response time. Ask about spare parts availability, local servicing and the provision of replacement equipment.

Also clarify who pays in the event of faults, normal wear and tear, misuse, theft or electrical damage. Insurance obligations and requirements to use authorised service providers should be included in your budget.

Before delivery, agree on how the condition of the equipment will be documented, including identification details and photographs. For returns, check the required condition, responsibility for dismantling and transport, and any charges for damage. Vague expressions such as “perfect condition” need clarification on the wear and tear expected from normal use.

As a practical step, bring everything together in a separate record for each item: its owner, total cost, who is responsible for maintenance and the terms that apply when the arrangement ends. Only proceed once the equipment essential to the business is covered by clear rules on use, continuity of service and return.