Buying a franchise: who owns the equipment and who deals with defects?

A coffee machine, oven, refrigerated display cabinet or till system can account for a substantial share of your initial investment in a franchise. But an offer of a “turnkey outlet” does not, in itself, tell you who will own the equipment or who will help if it stops working. When joining a franchise network, distinguish between the right to use the brand and the acquisition of specific assets. For equipment, you need clear terms identifying the seller, the owner, the price and responsibility for defects.

1. Break the package down into individual items and contracts

Start by requesting an itemised equipment list. For each item, it should be clear whether you are buying it, hiring it, acquiring it through a leasing arrangement or simply being given the right to use it under the franchise agreement. Paying a single combined invoice does not establish the legal status of every piece of equipment.

The list should include at least:

• the precise equipment type, quantity and condition — new or used;
• the price and whether it includes delivery, installation and commissioning;
• the contractual supplier and intended owner;
• when handover and transfer of ownership take place;
• documentation, accessories and any necessary software licences.

Also ask about retention of title. If this has been agreed, you may already be using the equipment but only become its owner once the agreed conditions have been met, typically payment in full. For financed equipment, have a lawyer check that the contracts are consistent with one another and that you are not using or dealing with someone else’s property in a way prohibited by the finance provider.

2. Establish who is actually responsible to you

The Czech Republic has no specific franchise law. A franchise agreement is usually an unnamed contract under Section 1746(2) of Act No. 89/2012 Coll., the Czech Civil Code. Depending on the substance of the arrangement, acquiring equipment is also governed by the general rules on sales, hire or other relevant contractual obligations. A single document may therefore combine several different legal relationships.

Franchise agreements are not subject to a specific mandatory registration requirement, nor is there a requirement to provide a standardised pre-contractual disclosure document. General duties relating to contract negotiations still apply, however. Do not expect a mandatory franchise form to explain equipment ownership or the procedure for reporting defects and making claims.

What matters is the contractual role, not the logo on the offer. The franchisor may be the seller, an intermediary or simply the party specifying the approved equipment model. If you buy directly from a supplier, your claims under the sale contract are not automatically claims against the franchisor.

Agree a separate sale contract or a clearly distinguished section within the franchise documentation. When buying as a business, do not rely on consumer protection or an automatic right to return ordered equipment within fourteen days.

3. Make functional testing part of the handover

Delivering boxes is not the same as handing over a working outlet. Agree exactly what completion of delivery means: positioning the equipment, connecting it, configuring it, testing its performance and, where appropriate, training staff to use it. At the same time, specify who is responsible for ensuring that the premises and necessary utility connections are ready.

The handover record should identify the equipment and include test results, the manuals supplied and a list of any defects found. For each defect, record the deadline for rectification and the person responsible. Do not sign an unconditional acceptance if the equipment could not be tested; record the reason for the limited inspection.

It is sensible to make part of the payment conditional on successful commissioning. However, you must negotiate this arrangement in advance, rather than announce it unilaterally after delivery. Also clarify what happens if there is a delay: who will provide an alternative solution, and how will the opening date be adjusted if you cannot trade without a key machine?

4. Distinguish between defect rights, warranties and servicing

Rights arising from defective performance, a contractual quality warranty and a servicing arrangement are not the same thing. In a business purchase, you cannot simply assume that you have the same protection as a consumer. The scope of your rights depends on both the law and the agreed terms; make sure any contractual warranty is expressly set out.

In particular, check whom you must notify of a defect, how you must do so and how quickly. The Civil Code’s rules on sales include duties to inspect goods and report defects promptly. Delaying a claim may jeopardise your ability to pursue it successfully.

The servicing agreement should distinguish between acknowledging a request, a technician arriving and the fault actually being fixed. A promise of a quick response does not guarantee a quick repair. Establish who pays for travel or transport, labour, spare parts and routine maintenance, and whether replacement equipment is available.

5. Test the contracts against a single breakdown

Before signing, imagine that your main piece of equipment stops working shortly after opening. Can you tell from the documents whom to call, who will attend, who will pay for the repair and whether you may temporarily use a different machine? Any alternative solution must also comply with the franchise network’s agreed standards.

Include not only the purchase price in your financial plan, but also maintenance costs and a reserve for downtime. Do not assume that lost revenue will automatically be compensated; this depends on the legal basis, the contract and your ability to substantiate the claim. Have a lawyer assess any limitations of liability.

Practical takeaway: Before paying for equipment, make sure you have an itemised list, a clearly identified contracting party, rules for handing over fully functioning equipment and a workable defect claims procedure. Only then will you know what you are actually acquiring and how to protect your operations.