Buying a Franchise: Protect Your Reservation Payment Before Signing

You may be asked to make a reservation payment before you have finished assessing a franchise offer. The stated purpose might be to reserve a package, lock in a price or start a site assessment. But an upfront payment is more than a sign of serious intent: it may be difficult to recover if the terms are unclear. In franchising, trust needs to be backed by a written agreement explaining what you are paying for and what happens if the purchase does not proceed.

1. Distinguish reservation payments from service fees

Do not judge a payment solely by its label. Terms such as holding payment, deposit, reservation fee and advance payment may be used for different obligations. What determines the risk is the substance of the agreement, not the heading on the receipt.

Before transferring any money, ask the franchisor to clarify whether the payment is:

• An advance towards the franchise fee, which will reduce the amount due when the agreement is signed.
• A fee for preliminary services, such as a site survey or outlet design work, with specified deliverables.
• A reservation payment, securing an offer for an agreed period.
• A combination of several components, each of which needs its own stated amount and terms.

If the money pays for a survey, ask what you will receive: a written report, a site recommendation or simply a visit. If it is for a reservation, make sure it is clear what is being reserved. Locking in a package price is not the same as obtaining the right to open an outlet in a particular territory.

Also ask whether the payment will be credited in full against subsequent charges. Avoid a situation in which money initially described as an advance is later treated as an additional administration fee.

2. Understand the rules before making an initial commitment

Indonesia specifically regulates franchising through Government Regulation No. 35 of 2024 on Franchising, which replaced Government Regulation No. 42 of 2007. One requirement is that the prospective franchisee must receive the Franchise Offering Prospectus at least 14 calendar days before signing the Franchise Agreement.

This requirement matters to the sequence of the purchase process, but it should not be read as a guarantee that every reservation payment is automatically refundable. The prospectus disclosure deadline does not create a right to cancel without charge in relation to all preliminary payments. Refund entitlement needs to be assessed against the agreement, the circumstances of the payment and the applicable law.

Preliminary agreements also need to take account of the general contract provisions in the Indonesian Civil Code, known as the KUHPerdata. Article 1320 sets out the conditions for a valid agreement, while Article 1338 broadly provides that legally valid agreements bind the parties and must be performed in good faith.

Do not therefore assume that a reservation form has no legal effect simply because it is not headed “Franchise Agreement”. Read the obligations it contains. If the form already requires payment of the balance, restricts cancellation or imposes substantial penalties, ask a legal adviser to assess its substance before you pay.

3. Put refund triggers and limits on deductions in writing

An agreement that merely says “refundable in accordance with company policy” does not provide certainty. You need to know which circumstances trigger a refund, who assesses whether those conditions have been met and when the money must be repaid.

Distinguish at least three situations: the prospective buyer chooses to withdraw, the franchisor rejects the prospective buyer, and the franchisor cannot deliver the offer as promised. These do not all need to have the same consequences, but those consequences must be clear before payment.

Negotiate written terms covering:

• Grounds for a refund: the events and evidence required to submit a request.
• Refund amount: the full payment or the balance after specified deductions.
• Permitted deductions: the types of work covered, monetary caps and the supporting evidence of costs that must be available.
• Repayment deadline: measured from an objectively defined event or document agreed by the parties.
• How to apply: where to send the request and how receipt will be acknowledged.

As one possible negotiating approach, the survey fee could be separated from the advance payment and become non-refundable only once the survey has actually been carried out. This is not a mandatory rule for all franchises, but a way to align payments with work that can be verified.

Be wary of deductions for “all costs incurred” without itemisation or a cap. Wording of this kind can make the refund amount difficult to predict, even where the document states that the money is refundable.

4. Check that the paperwork matches the payment arrangements

Before making a transfer, check that the party named in the reservation agreement matches the payment recipient. If you are instructed to pay someone else, request written evidence of their authority to receive the money and confirmation that the payment will count towards meeting your obligations.

Keep a single file containing the offer, reservation agreement, cost breakdown, payment instructions, transfer confirmation and receipt. Make sure the receipt states the specific purpose of the payment, rather than simply “package payment”. Any refund promises made in conversation should be incorporated into a document agreed by both parties.

Also check how long the reservation remains valid. Agree what happens if it expires before your review is complete: whether it is extended, cancelled or requires fresh agreement. Do not allow a prospective buyer’s silence to be treated as automatic consent to pay the remaining package balance.

Practical takeaway: pay only once the purpose of the funds, promised deliverables, refund triggers, limits on deductions and refund deadline are clearly set out in writing. If these points have not yet been agreed, delay the transfer—not your due diligence.