Buying a franchise: should you buy or lease equipment?

Commercial kitchens, machinery, specialist furniture and till systems can account for a substantial share of a franchise project's costs. Joining a franchise network does not mean the franchisor will fund this equipment or guarantee a return on it. Before choosing whether to buy or lease, check what is actually compulsory, the full cost and the exit terms of each agreement.

1. Get a detailed list of the equipment you need

Ask the franchisor for a written list distinguishing between equipment essential for opening, optional items and purchases that can wait. For each item, ask for the technical specifications, quantities, compatibility requirements and whether second-hand equipment is acceptable.

A performance requirement is not the same as an obligation to buy a particular model from a specified supplier. If a particular product or provider is compulsory, ask where this requirement is set out and whether an equivalent alternative can be approved in writing.

Do not confuse an indicative budget with a firm quotation. The price of a machine may exclude delivery, installation, connection, testing or essential accessories. Also check whether the amounts quoted include or exclude VAT.

In France, pre-contractual disclosure is governed in particular by the Doubin Law, now codified in Article L. 330-3 of the French Commercial Code, and by Article R. 330-1. Where the statutory conditions apply — use of a trade name, trademark or trading identity coupled with an exclusive or near-exclusive commitment — the pre-contractual disclosure document and draft contract must be provided at least twenty days before signing or making the relevant advance payment. The disclosure must specify, among other things, the nature and amount of expenditure and investment specific to the trading identity or brand that must be incurred before operations begin. This does not replace quotations tailored to your premises.

2. Compare the options over the same period

Buying ties up cash or requires borrowing, but gives you ownership of the equipment. You are responsible for its maintenance, ageing and eventual resale. Renting or leasing lets you use the equipment in return for regular payments, without automatically becoming its owner. French equipment lease-purchase arrangements, known as crédit-bail, generally include an option to buy, whose terms need careful examination.

For a meaningful comparison, use the same equipment, the same period of use and an equivalent level of service. Prepare a table covering:

• the initial payment, security deposit and arrangement fees;
• regular payments, any index-linked increases and financing charges;
• maintenance, consumables and required inspections;
• warranties, insurance and any policy excesses;
• the purchase option price or return charges;
• a cautious estimate of resale value.

A low monthly payment does not mean a low total cost. It may reflect a long minimum term, excluded services or a substantial final payment. Ask your accountant to review the accounting, tax and cash-flow implications, particularly the timing of VAT payments under your chosen arrangement.

3. Check who steps in when equipment breaks down

Finance and maintenance may be covered by separate contracts. Identify who sells the equipment, who finances it and who carries out repairs. A combined sales pitch does not mean that a single party is legally responsible for every service.

Before signing, get written answers on four points: response times, spare parts availability, provision of replacement equipment and warranty exclusions. Also check who pays for technicians' travel and out-of-hours call-outs.

For essential equipment, estimate the impact of downtime: slower operations, services you cannot provide or stock losses. This will help you choose suitable maintenance cover rather than simply the cheapest package.

Finally, do not assume that a breakdown entitles you to stop making rental or lease payments. Your remedies depend on the contracts and whether they are legally interdependent. Have this checked before committing.

4. Plan what happens to the equipment when you leave

Compare the finance agreement's payment schedule and end date with the term of the franchise agreement. If the lease continues after your right to operate under the brand ends, you could still have to pay for equipment that is no longer useful to your business.

Ask about early termination costs and the conditions for transferring the agreement to a buyer of your business. You may not be free to transfer it: the lessor's or finance provider's consent may be required. If equipment must be returned, check the required condition, dismantling charges and transport costs.

Plan for obsolescence too: will equipment you are still paying for remain compatible with the systems needed to run the business? Any promise to buy back or replace equipment should have its conditions set out in writing.

Key takeaway: before placing any order, gather the approved equipment list, comparable quotations, and draft finance and maintenance agreements. Base your decision on the full cost and exit terms, not just the monthly payment.