Franchise Equipment Breakdowns: Checking Repair Costs and Responsibility for Business Interruption Before You Sign

When choosing a franchise brand, it is easy to compare equipment quotes but overlook who is responsible if something breaks down. If essential equipment such as refrigerators, dishwashers or production machinery stops working, repair costs and trading losses can arise at the same time. To keep your franchise business running reliably, do not simply rely on the franchisor’s equipment recommendations. Before signing, establish who pays for what and how quickly they must respond. This article focuses on equipment breakdowns and maintenance arrangements for new outlets in South Korea.

1. Distinguish equipment standards from responsibility for repairs

Franchise transactions in South Korea are governed by the Fair Transactions in Franchise Business Act. Article 6 requires franchisees to comply with appropriate quality standards and appropriate standards for business premises, equipment and appearance set by the franchisor. Checking the equipment standards needed to maintain brand quality is therefore an important part of reviewing the agreement.

However, having to meet the franchisor’s equipment standards does not automatically mean the franchisee must pay every breakdown-related cost. That provision alone does not establish a free repair period or an obligation to provide replacement equipment. To determine responsibility, you need to review not only the franchise agreement but also equipment purchase or hire agreements, warranty terms, the cause of the fault and applicable legislation.

Start by asking the franchisor for a list of essential equipment and its performance requirements. Check whether you must use a particular model or whether equipment with equivalent performance can also be approved. Ask who will handle any adjustments if approved equipment is incompatible with the outlet’s electricity supply, water supply or drainage.

The franchise disclosure document sets out matters including the franchisee’s financial obligations and operating conditions. Review how equipment-related obligations are described, and resolve any differences between the disclosure document, agreement and quotation before signing. A cost listed in the disclosure document does not, by itself, confirm the warranty and repair terms for individual items.

During discussions, always follow up a statement such as “This equipment meets the franchisor’s standards” with another question: “What will the supplier and the franchisor each do if it stops working during normal use?” Treating compliance with standards and after-sales support as separate issues is the starting point for a proper review.

2. Record ownership and contracting parties for each item

Even if you pay the franchisor for the equipment, the supplier, installer and repair company may be different businesses. Alternatively, you may contract directly with a company introduced by the franchisor. Do not assume that the party receiving payment is also responsible for breakdowns.

For each item, record the following details to clarify the contractual arrangements.

• Type of arrangement: Is the equipment purchased, hired or loaned free of charge, and who owns it?
• Contracting parties: What are the exact names of the supplier, installer and warranty provider?
• Acceptance criteria: What tests will confirm that installation is complete and the equipment works properly?
• Warranty cover: Does it include parts, call-out charges and labour?
• End-of-contract arrangements: Will you keep the equipment, or must it be returned or removed?

If you receive a package quotation, ask for an itemised breakdown showing each model, quantity, whether it is new and its price. A single total makes it harder to identify the equipment and amount involved if a defect or replacement dispute arises. For second-hand or refurbished equipment, check its usage history and warranty terms separately.

The warranty start date also matters. Whether it begins on delivery, installation or acceptance can affect how much cover remains once you start trading. Ask in writing whether the warranty period can be adjusted if building delays postpone your opening.

Rather than signing an acceptance form that merely says “installation complete”, record the tests performed and any outstanding work. Equipment may switch on successfully yet still fail to cope with actual operating demand. Agree suitable tests with the installer based on the equipment’s characteristics, and retain the results alongside photographs.

3. Check response times and exclusions, not just free repairs

The phrase “free repairs during the warranty period” tells you little about the risk of business interruption. Even if repairs are free, your outlet may remain unable to trade while you wait for a technician or spare parts. Check the process from reporting a fault through to restoring normal operation.

First, establish the reporting channels for weekdays, weekends and public holidays. Ask whether you should notify the franchisor or contact the manufacturer directly, and who will provide progress updates. Distinguish between helpline opening hours and the hours when technicians can attend. Being able to reach someone does not mean an immediate site visit is available.

Check whether the response time offered by the franchisor or supplier is a binding contractual commitment or merely a target. Call-out schedules and charges may differ in regional or island locations, so obtain an answer specific to your proposed site. Do not rely solely on the experience of outlets elsewhere.

Next, read the exclusions from free repairs. Check how the terms distinguish between replacement of consumables, routine cleaning, electrical supply faults, drainage problems and user error. If the wording refers only to “inadequate maintenance”, request specific details of the required tasks, their frequency and how they should be recorded.

You should also establish what happens if there is disagreement over the cause of a fault. Check who will diagnose it, whether you can obtain the diagnostic report and whether you can request further inspection. Except where urgent safety measures are necessary, take care not to lose evidence through parts being discarded or equipment being removed before the cause has been established.

4. Include business interruption costs before deciding whether to sign

Do not calculate equipment upkeep solely on the basis of routine maintenance fees. Include call-out charges and repair costs after the warranty expires, consumables and the cost of hiring temporary replacement equipment. Separately calculate expenses that continue while repairs prevent sales, such as rent and staff costs. Build your budget using quotations and verifiable terms rather than an arbitrary average breakdown rate.

Check whether temporary replacement equipment is available if an item fails. If it can be hired or borrowed, ask what happens when none is in stock and who pays for transport, installation and return. Replacement equipment must also meet the franchisor’s quality standards. Substituting equipment without approval could create further product quality or safety issues.

For example, a refrigeration breakdown may lead to the disposal of stored stock as well as repair costs. Decide in advance what evidence to retain, such as temperature records, the time the fault was reported and photographs of affected stock. Whether compensation is payable, and how much, will depend on matters including the basis of liability, the contract and the evidence. Compensation is not automatic.

Do not simply accept broad exclusions of liability such as “All losses are the franchisee’s responsibility”. Under South Korea’s Act on the Regulation of Terms and Conditions, unfairly disadvantageous standard terms may be open to challenge. However, a term is not necessarily invalid just because it is unfavourable, so it is safer to obtain legal advice on significant liability exclusions before signing.

Finally, when comparing brands, record not only equipment prices but also the party responsible for repairs, warranty exclusions, on-site response arrangements and the availability of temporary operating options. Even a low initial quote needs further investigation if responsibility for breakdowns is unclear. Treat vague terms as unresolved risks, not as evidence that no cost will arise.

Action summary: Before signing, prepare a one-page record for each essential item setting out who owns it, who repairs it and who pays which costs while you wait. Ensure the answers are recorded in an agreement or warranty document confirmed by the responsible party. If important terms remain unresolved, do not rush the purchase decision.