Hong Kong Franchise Equipment Guide: Clarify Ownership, Maintenance and Replacement Costs Before Signing

When entering Hong Kong’s franchise market, equipment is an easily underestimated commitment alongside franchise fees and rent. Coffee machines, freezers, beauty treatment devices and point-of-sale terminals may appear in a ‘start-up package’, but that does not mean they are fully paid for, belong to the franchisee or will be maintained by the franchisor. Before paying, check the arrangements for each item as a separate transaction rather than focusing solely on the package price.

1. Establish whether you are buying equipment or the right to use it

Ask the franchisor for an equipment list specifying the model, quantity, condition, supplier, unit price and delivery date. Each item should be identified as an outright purchase, rental, hire purchase or loan from the franchisor. Do not settle for vague descriptions such as ‘complete equipment package’ or ‘standard specification’.

The payment recipient, equipment owner and maintenance provider may be three different parties. If you pay the franchisor but the equipment is rented from a third party, review the relevant rental agreement. Confirm who the hirer is, who is liable for outstanding payments and whether you can continue using the equipment after the franchise agreement ends.

Before signing, obtain written answers to at least the following questions:

• When does ownership transfer? On delivery, on acceptance or only once all payments have been made?
• Are there any retention-of-title or financing arrangements? Ask the seller to confirm that it has the right to sell the equipment and disclose any third-party rights.
• Is the equipment tied to software or an account? Even if you own the machine, will it still work if you stop paying subscription fees?
• Can you remove or resell it when you leave the franchise? Must you remove branding, have system locks released or obtain approval?

The franchisee company should retain equipment invoices, payment records, serial numbers and warranty documents. A quotation alone may not be enough to establish the rights involved in the overall transaction.

2. Hong Kong has no franchise-specific disclosure regime: equipment protections depend on the transaction

Hong Kong has no dedicated franchise legislation, nor a generally applicable statutory franchise disclosure regime, franchise-specific registration system or mandatory franchise code of conduct. Do not assume that a brand must disclose equipment commissions, rental commitments or maintenance restrictions in a standard format. Request important information yourself and have it incorporated into the contract.

Franchise and equipment arrangements are generally governed by common law principles of contract. Where a transaction is a sale of goods, the Sale of Goods Ordinance (Cap. 26) may provide implied terms concerning the right to sell, correspondence with description, quality and fitness for purpose. However, the specific protections depend on the facts and terms of the transaction; they cannot simply be applied to every rental arrangement.

Services such as installation and maintenance may also fall within the Supply of Services (Implied Terms) Ordinance (Cap. 457), including its requirement to exercise reasonable care and skill. Clauses limiting or excluding liability may be subject to the Control of Exemption Clauses Ordinance (Cap. 71). Do not assume that a contractual statement accepting ‘no liability’ is necessarily effective, or that all exclusion clauses are automatically invalid.

If sales staff make false statements about equipment performance, condition or warranty cover, the Misrepresentation Ordinance (Cap. 284) and common law principles may be relevant. Keep promotional materials and correspondence, and ask a Hong Kong solicitor to review the purchase, rental and service documents together.

3. Set out workable procedures for delivery, acceptance and downtime

‘Delivered to the premises’ does not mean ‘ready for business’. Ask for the contract to distinguish between delivery, installation, testing and acceptance. It should specify who is responsible for checking the electricity supply, drainage, ventilation and site conditions, so that you do not discover the equipment is unusable only after it arrives.

Acceptance criteria should reflect actual use: for example, whether specified functions work properly, all accessories are supplied and operating instructions are provided. For second-hand or refurbished equipment, also request its age, maintenance history and details of known faults. Do not sign an unqualified statement confirming that everything is satisfactory before testing it.

Consider negotiating the following arrangements:

• Payment milestones: Link part of the payment to installation and acceptance, rather than paying solely according to dispatch dates.
• Defect handling: Specify how faults must be reported, repair deadlines and arrangements for replacement or a refund if repairs fail.
• Warranty coverage: Clarify the treatment of parts, labour, call-out charges, consumables and damage caused by misuse.
• Emergency support: Specify service hours, response and attendance deadlines, and whether replacement equipment is available during repairs.

Above all, distinguish between ‘acknowledging a fault report’ and ‘restoring operation’: the former does not guarantee that your outlet can reopen. Agree in advance how equipment hire costs, stock losses and continuing franchise charges will be handled during downtime. Do not assume that an equipment failure entitles you to stop paying royalties unilaterally.

4. Compare costs over the full term, not just the opening quote

Request an equipment cost schedule covering the franchise agreement’s term, with separate entries for purchase or rental, installation, maintenance, calibration, software subscriptions, consumables, relocation and removal. Where costs cannot yet be confirmed, specify how they will be calculated rather than treating them as zero.

For hire purchase or other financing, check the total amount payable, fees, final payment, early repayment terms and arrangements for repossession following default. The end of the franchise agreement does not automatically end your equipment financing obligations. Do not simply ask whether the monthly instalments are affordable; ask what you will still owe after leaving the franchise.

Also clarify who decides when equipment must be replaced if it breaks down, spare parts are discontinued or the system is no longer supported. Consider negotiating requirements for technical justification, quotations and reasonable notice, and specifying whether you may use equivalent equipment that meets the required standards or independent repair providers. These are negotiable protections, not statutory rights that franchisees necessarily enjoy.

Practical takeaway: Before paying, complete an equipment responsibility table showing, for each item, ‘who owns it, who pays, who accepts it, who maintains it and what happens when you leave’. If any entry still says ‘to be confirmed’, finalise the written arrangements before committing to payment.