Franchising: managing equipment and assets supplied to franchisees

When an existing business prepares to build a franchise network, equipment is often treated as just another item in the initial investment. But who owns the refrigerated counter, who pays when a machine breaks down, and who decides when to replace it? Clarifying these points before bringing franchisees on board helps avoid unexpected costs, operational disruption and disputes over assets essential to day-to-day work.

1. Separate ownership, use and payment arrangements

Start with the equipment already in your business and draw up a list of what is needed to replicate the service. For each asset, distinguish between three things: who owns it, who uses it and the basis on which it is supplied.

The options are not interchangeable:

• Purchase by the franchisee: ownership passes to the franchisee under the terms of the sale; warranties, delivery and support need to be clearly defined.
• Rental or hire: the franchisee pays to use the asset; maintenance and any included services depend on the agreement.
• Loan for use (comodato): the asset is provided for a specified use or period and must be returned. Article 1803 of the Italian Civil Code establishes that this arrangement is essentially free of charge.
• Finance leasing: a finance provider is involved, and the arrangement requires a separate assessment, including insurance obligations and the terms of any purchase option.

Do not automatically describe equipment as supplied under a “free loan for use” if a specific payment is charged for it. If its use forms part of a package paid for through other fees, ask your legal adviser to check the agreement’s actual legal classification.

2. Link equipment arrangements to disclosure obligations

In Italy, franchising is governed by Law No. 129 of 6 May 2004. Article 3 requires the contract to be in writing, failing which it is void. It also requires the contract to expressly state, among other things, the investment and any entry fees the franchisee must pay before starting operations, as well as the nature of the services provided by the franchisor.

Mandatory equipment directly affects these matters. Simply presenting a total fit-out figure is therefore not enough: it must be clear which assets are being purchased, which remain someone else’s property and which involve recurring payments.

Article 4 requires a complete copy of the contract and the annexes required by law to be supplied at least 30 days before signing, subject to the specific exceptions applicable to the annexes. Equipment terms forming part of the agreement must be included in the contractual documentation, rather than left to subsequent verbal arrangements.

The respective provisions of the Italian Civil Code also apply to sales, rental and loans for use. An equipment schedule is an operational tool, not a substitute for the contractual terms governing each arrangement.

3. Create a record for every essential asset

Before the first franchised outlet opens, create an equipment register. For each essential asset, record:

• description, model, serial number and owner;
• basis of use and supporting documents;
• condition on delivery and accessories included;
• warranty, technical support contact and operating instructions;
• scheduled maintenance and the party responsible;
• insurance cover to be checked;
• procedure for reporting breakdowns, damage or theft.

On delivery, a handover report accompanied by photographs helps document the asset’s actual condition. If the equipment is second-hand, avoid generic descriptions such as “in full working order” without carrying out checks appropriate to the equipment concerned.

Then distinguish routine maintenance from major repairs, specifying exactly which tasks each category covers. For example, filter cleaning, periodic inspections and component replacement should not all be grouped indiscriminately under “support”.

Allocating costs between the parties does not remove the safety obligations applicable to work equipment, including those under Italian Legislative Decree No. 81/2008. The relevant arrangements should be checked with suitably qualified professionals.

4. Plan for breakdowns and replacements before they happen

A machine that is out of action may prevent the franchisee from delivering the service. Define a straightforward process: who receives the fault report, who authorises repairs and who can order a replacement. Also explain what to do when the usual contact is unavailable.

If you plan to provide a temporary replacement machine, clarify availability, transport, installation and costs. Do not promise uninterrupted service unless you have the resources to guarantee it.

Finally, distinguish replacement following a breakdown from an upgrade required by the franchisor. Equipment that still works may become incompatible with a new way of delivering the service. Before requiring it to be replaced, consider the investment the franchisee has yet to recover, the notice period, spare parts availability and affordability for the franchisee. Any upgrade obligations and criteria for allocating costs must have a clear contractual basis.

Practical tip: before offering a franchise, complete a record for every essential piece of equipment. If you do not yet know who pays for delivery, maintenance, downtime and replacement, the equipment arrangements are not ready to be offered to franchisees.