Buying a Franchise: Check Equipment Ownership and Warranties

Coffee machines, refrigerators and point-of-sale equipment can account for a significant share of a franchise package’s price. However, paying for the package does not necessarily mean you own all the equipment it contains. Before joining a franchise network, prospective franchisees should establish who owns the assets, who pays for breakdowns and how the outlet will keep operating if essential equipment fails.

1. Distinguish between purchase, hire and loan arrangements

Ask for an equipment list specifying each item’s name, brand, model, quantity, condition and ownership status. Do not settle for descriptions such as “complete outlet package”. This does not explain whether the equipment will belong to you, be hired to you or simply be lent to you for the duration of the franchise relationship.

For each item, check the offer against the draft contract and transaction documents. Key questions include:

• Does the package price cover the purchase of the equipment, or only the right to use it?
• When does ownership transfer: on payment, delivery or payment of the final instalment?
• Who is named as the buyer on the invoice?
• Is the equipment subject to a financing arrangement or pledged as security to another party?
• If the equipment does not belong to the franchisee, who can take it back, and under what circumstances?

If you pay the franchisor but a supplier provides the goods, ask for a written explanation of the relationship between all three parties. Make sure your payment gives you clearly defined rights, rather than just a promise of delivery.

For used or refurbished equipment, request its usage and maintenance history. Weigh an attractive price against its remaining service life, spare parts availability and the possibility that it may need replacing sooner.

2. Make the handover a technical inspection

Do not sign a handover record stating that all equipment has been received in good condition before it has been inspected. Agree an acceptance procedure from the outset, including who will test the equipment and how any shortcomings will be recorded.

Checks should cover the model, serial number, all required accessories, physical condition and performance under relevant operating conditions. A machine that switches on may not be able to meet the outlet’s needs. Also check electricity, water, ventilation and specialist installation requirements so that unexpected adaptation costs do not arise after delivery.

Agree who will pay for delivery, installation, testing and replacement of items that do not match the agreed specifications. If equipment cannot yet be tested because the premises are not ready, the handover record should distinguish between physical receipt and acceptance following functional testing.

Record every shortcoming in writing, with photographs, dates and a deadline for resolution. If payment is made in stages, you can propose making the final payment conditional on completion of installation and testing. This is a commercial proposal that must be agreed, not an automatic right of the franchisee.

Keep invoices, serial numbers, instruction manuals, warranty cards and handover records together in an asset file. These documents will help when making claims, arranging maintenance or proving ownership.

3. Scrutinise warranties and responsibility for breakdowns

The statement “covered by warranty” does not explain the protection you will actually receive. Ask who provides the warranty: the manufacturer, distributor, supplier or franchisor. Make sure you can make a claim even if the original invoice was issued in someone else’s name.

Request written terms covering the warranty start date, covered components, exclusions, technician fees, shipping costs and service locations. Check whether the warranty starts when the franchisor purchases the equipment or when it is handed over to you. That gap can reduce your effective period of cover.

Also distinguish between failures caused by product defects and damage caused by use, installation or inadequate maintenance. Ask for a procedure for determining the cause of a failure, so that decisions about who pays do not depend solely on one party’s assessment.

For equipment essential to keeping sales going, negotiate arrangements for dealing with breakdowns:

• Deadlines for a response and a technician’s inspection.
• Availability and cost of temporary replacement equipment.
• Permission to use an alternative technician if the main service provider is unavailable.
• A process for obtaining approval for emergency repairs without invalidating the warranty.

Do not assume that a warranty automatically covers lost revenue. If this protection is promised, its scope and the claims procedure must be expressly stated.

4. Align equipment costs with the franchise contract

Indonesia has specific franchise rules under Government Regulation No. 35 of 2024 on Franchising, which replaced Government Regulation No. 42 of 2007. This regulation governs franchise operations, including franchise offering prospectuses and franchise agreements. However, having franchise documents in place does not in itself establish that every machine in the package belongs to the franchisee or carries a particular warranty.

Check that the package details, franchise contract and equipment purchase or hire agreements are consistent. The general contract provisions of the Indonesian Civil Code are also relevant, including Article 1320 on the requirements for a valid agreement and Article 1338 on the binding force of lawfully concluded agreements.

Calculate the total cost of ownership, including purchase or hire, installation, routine maintenance, spare parts and potential replacement. Do not simply compare package prices across brands; compare the responsibilities that remain with you once the outlet opens.

Practical step: before paying for the package, make sure each item’s ownership status, handover documentation, warranty provider and allocation of repair costs are clearly established in writing.