Franchise Equipment Contracts: Checking Purchase, Rental and Repair Costs Before You Start

Comparing only the equipment prices in franchise start-up quotations can obscure the true cost. Even for the same coffee machine or fridge, the funding you need will depend on whether you buy or rent it, who handles repairs and how business interruptions are dealt with. When choosing a franchise brand to join, look beyond equipment performance to the contractual arrangements behind it. This article focuses on the operating equipment and furnishings for a new outlet, setting out the costs and responsibilities to check before signing.

1. Match each quoted item to its contract and owner

Start by breaking down the franchisor’s equipment package into individual items. Begin with equipment you will use every day, such as kitchen appliances, fridges and freezers, point-of-sale terminals and self-service ordering kiosks. For each item, record the model, quantity, whether it is new, the supplier, the recipient of payment and the owner. A single line in a quotation labelled ‘kitchen package’ is not enough to assess price differences or the scope of each party’s responsibilities.

Do not assume that the party receiving your payment is also the party that owns the equipment. Even if the franchisor arranges installation, your contract may actually be with a supplier or rental company. For purchases paid in instalments, check whether the seller retains ownership until payment is complete. Equipment described as being lent free of charge does not necessarily become yours either.

Request an equipment schedule covering the following points, and keep it with the relevant contracts.

• Purchased equipment: the seller, the party providing the warranty, when ownership transfers and the delivery terms
• Rented equipment: the rental provider, the rental period, the deposit and what happens at the end of the term
• Equipment on loan: conditions of use, return obligations and the basis for charging for damage
• Second-hand equipment: date of manufacture, repair history and how working condition will be checked on delivery

You can also use this schedule when discussing loans or arranging insurance. However, do not treat rented equipment as your own assets or plan to offer it as security. Give the lender an accurate account of ownership for each item, together with the instalment purchase or rental agreements, and separately confirm how much funding is actually available.

Apply the same criteria when comparing brands. If one includes equipment purchases in its initial quotation while another charges monthly rent, the initial investment alone will not tell you which is cheaper.

2. Calculate cash outgoings over the full period of use, not just installation costs

Build your cost comparison from the contract date through to the end of the planned period of use. In addition to the purchase price or rent, list transport, delivery into the premises, installation, commissioning, routine inspections, consumables and removal costs separately. Check whether VAT is included and when each payment falls due to reduce the risk of a cash shortfall just before opening.

Additional work required by conditions at the premises is especially important when reviewing installation quotations. Ask whether the equipment price includes electrical capacity upgrades, water supply and drainage connections, and connections to ventilation systems. Obtain separate quotations from the relevant contractors for anything excluded. If additional charges have only been explained verbally, ask for them to be included in the written quotation.

For rental or instalment arrangements, look first at the total amount payable and the terms for ending the contract, rather than the monthly payment. Check whether ownership transfers automatically at the end, whether a separate purchase payment is required and who pays for return transport. Payment obligations under a separate equipment contract may continue after the franchise agreement ends, so compare the terms of both contracts side by side.

Allow for a repair reserve in your working capital as well as regular payments. Rather than choosing an arbitrary repair budget, obtain details of warranty coverage, a schedule of call-out charges and quotations for major parts. For point-of-sale terminals and ordering kiosks, check whether equipment, software and maintenance fees are charged separately. This will give you a clearer picture of recurring expenditure.

When comparing quotations, use the same period of use and service scope. Comparing a purchase option with a longer warranty against a rental option that includes inspections solely on monthly payments will miss important differences. List included services and exclusions alongside each total.

3. Spell out responsibility for breakdowns in the franchise agreement

In South Korea, the Fair Transactions in Franchise Business Act and its Enforcement Decree prescribe what franchise agreements must contain. Under Article 11 of the Act and Article 12 of the Enforcement Decree, the agreement must cover the installation, maintenance and repair of the outlet’s operating equipment and furnishings, as well as responsibility for the associated costs. It is therefore unwise to sign on the strength of an assurance that you can simply ‘contact the equipment supplier’.

Also compare the sections on franchisee costs and operating conditions in the registered franchise disclosure document against the agreement and equipment quotation. Registration of the disclosure document does not guarantee the performance of particular equipment or a supplier’s repair capabilities. If the documents differ on costs or responsibility, obtain a written explanation and confirmation of the terms that will apply before signing.

The maintenance provisions should answer at least the following questions.

• Should faults be reported to the franchisor or the supplier?
• Which parts are excluded from the free warranty, and how is user negligence assessed?
• Who pays the call-out charge, labour costs and parts costs respectively?
• If repairs are delayed, will replacement equipment be provided, and who pays for it?
• How is replacement decided if equipment repeatedly breaks down or cannot be repaired?

Specific reporting hours, target attendance times and procedures for notifying you of delays are more useful in practice than a promise to ‘repair promptly’. However, an agreed attendance target does not automatically include a promise to compensate you for lost business. Whether compensation is payable depends on the contract, the cause of the breakdown and responsibility for it, among other factors, so this needs separate consideration.

4. Check the documents before signing and the equipment on delivery

Just before signing, review the franchise agreement, equipment purchase or rental agreements, quotations and warranties together. Check that equipment descriptions and contracting parties match, and that the franchisor’s representative’s explanations are reflected in the actual contracts. If the franchisor says it guarantees repairs on the supplier’s behalf, it must also be clear who is making that commitment and in which document.

Once installation is complete, photograph model details and serial numbers, and record test results and unfinished work on the handover form. If you first sign a document confirming satisfactory receipt and then raise problems, it may be harder to establish the equipment’s condition at handover. Where there are defects, retain photographs, the date and time they were reported, and the response from the person handling the report.

If responsibility is unclear, or the arrangement involves a substantial long-term commitment, it is safer to have the documents reviewed together by a lawyer or a qualified Korean franchise transaction specialist before signing. For disputes with the franchisor, you can consider franchise dispute mediation through the Korea Fair Trade Mediation Agency. Disputes with a separate supplier may require a different route, depending on the contractual relationship.

The practical takeaway is simple: for each item of equipment, summarise its owner, the total amount payable, who is responsible for repairs and what happens when the contract ends on a single sheet. If any of these four points is missing, do not settle for another verbal explanation. Find the answer in the relevant contract document before you sign.