Franchise equipment: ownership, hire and warranties

Joining a franchise network can involve more than acquiring the right to use a brand: you may also have to launch your business with specified machinery, equipment or IT systems. Yet the investment figure alone does not tell you what you are getting for your money. Before buying, clarify who owns the equipment, the terms on which you can use it and what happens if it breaks down. These details can determine whether a technical fault means a straightforward repair or a prolonged loss of revenue.

1. Draw up an equipment list and specify the contractual basis for each item

A ‘complete start-up package’ is not a sufficiently precise contractual description. Ask for an itemised schedule covering machinery, equipment, tills and other IT hardware. It should state the model, quantity, whether each item is new or used, and exactly which business is supplying it.

For each item, specify whether it is supplied under a sale, hire, lease or other agreement allowing you to use it. Paying the initial franchise fee does not, in itself, mean you will own the equipment provided for opening.

In particular, check:

• when ownership passes to you, and whether there is a retention-of-title clause;
• who pays for delivery, installation and commissioning;
• which accessories and documents come with the equipment;
• what recurring usage or maintenance fees apply;
• whether a separate software licence is needed to operate it.

For used equipment, ask for its service history and a list of known faults. If a machine comes from another franchisee, also establish who the seller is: that franchisee, the franchisor or an intermediary. If a fault arises, your claim will not necessarily be against the franchisor.

2. Understand the legal protection available to you

Hungary has no standalone law covering every aspect of franchising, but that does not mean franchises are unregulated. Act V of 2013 on the Civil Code expressly recognises franchise agreements as a distinct type of contract. General contract rules also apply, alongside, for example, the rules on sale or hire, depending on the contractual basis on which the equipment is supplied.

The franchise agreement and the equipment purchase may therefore create different obligations. Requiring you to use a particular model does not automatically make the franchisor its seller or the service provider responsible for repairing it. It is worth having a lawyer review the related contracts together.

Hungarian law’s liability for defective performance, known as kellékszavatosság, essentially concerns defects in what has been supplied: it is not a general promise that equipment will work indefinitely without breaking down. A guarantee, or jótállás, is a separate legal concept, and you should also check its basis and conditions. Do not settle for the word ‘warranty’ in a quotation: ask for the detailed terms and the name of the party responsible for honouring them.

As a franchisee, you will generally be entering into contracts for business purposes. You should therefore not assume that you qualify for mandatory consumer guarantees or other consumer protections. Within the limits set by law, business-to-business contracts can substantially alter the default rules on liability for defects and other liability.

The Hungarian Franchise Association’s guidelines on franchise information documents also recommend describing goods that franchisees must buy or hire. This is a useful benchmark for transparency, but it is not legislation and does not replace a specific equipment agreement.

3. Plan for downtime as well as repairs

A free replacement part is of little help if your business cannot serve customers in the meantime. Alongside the purchase price, examine how operations will be restored after a breakdown.

Ask for a written fault-handling procedure. It should clearly identify how to report a fault, the expected response time, the arrangements for on-site visits and who can authorise repairs. Look for specific commitments rather than promises of ‘fast servicing’, with separate provisions for faults that bring operations to a halt and those that are less serious.

Also establish whether replacement equipment will be provided, who pays for its transport and who is responsible for setting it up. For imported or specialist equipment, ask specifically about spare parts availability and where repairs will take place. Treat these as terms to verify, not assumptions to rely on.

Maintenance obligations should be practical to meet and possible to document. If only an appointed service provider may carry out work, find out its charges and availability in advance. Record what consequences follow from each failure to meet your obligations; a missed administrative step should not lead to a dispute over unclear liability.

Agree separately what happens to franchise fees during downtime. An equipment breakdown does not, by itself, suspend all your payment obligations. Also examine how fee reductions, replacement equipment and any liability for damages interact.

4. Agree the handover and return arrangements in advance

At handover, draw up a record stating the equipment’s identification details, condition, accessories and test-run results. The document should distinguish physical receipt from successful commissioning. Do not sign a statement confirming fault-free performance simply because the delivery has arrived.

Where possible, link the payment schedule to verifiable delivery and commissioning milestones. Agree in advance what happens if accessories are missing, a test run fails or a fault prevents you from opening. It is also worth recording staff training and the provision of operating documentation as separate requirements.

For hired equipment, establish at the outset the condition in which it must be returned, the return location and who bears the cost. For equipment you own, check whether you can continue using it after the franchise relationship ends: ownership does not necessarily give you continued access to the software needed to operate it.

Practical takeaway: before signing, identify the owner, contracting party, party responsible for handling faults and party bearing the costs for every important piece of equipment. A complete start-up package is only transparent if you also know what happens when a machine stops working.