Buying a NZ Franchise: Check Equipment Ownership and Condition

When buying an existing franchise in New Zealand, do not assume that every machine, vehicle or device you see belongs to the seller or comes with the purchase. Equipment may be leased, financed, borrowed or nearing the end of its useful life. A focused equipment check helps you establish what you are actually buying and whether it can keep the business running from settlement.

1. Turn the equipment list into evidence

Ask for a detailed asset schedule rather than accepting descriptions such as ‘all equipment required to operate the business’. Your lawyer should ensure the agreed schedule forms part of the sale and purchase agreement.

For each significant item, record:

• Its description, make, model and serial number.
• Its location and whether it is currently being used.
• Who owns it and the evidence supporting ownership.
• Whether it is included in the price, excluded or supplied under a separate arrangement.
• Any associated finance, lease, rental or maintenance agreement.

Walk through the premises with the schedule. Match the listed items to the actual equipment, including items stored elsewhere or temporarily away for repair. Photographs can help identify what was inspected, but they do not establish ownership.

Pay particular attention to equipment supplied by the franchisor or another supplier. A branded refrigerator, payment terminal or coffee machine might be available only while a separate supply or rental agreement remains in force. Ask what consent or replacement agreement you need to continue using it after settlement, and what it will cost.

2. Check ownership and lender claims separately

An invoice showing that the seller bought an item is useful, but it does not necessarily establish that the asset is free of a lender’s claim. Equally, equipment physically located at the business may belong to a leasing company.

Ask your lawyer to investigate relevant registrations on the Personal Property Securities Register, known as the PPSR. Under the Personal Property Securities Act 1999, security interests can affect equipment and other personal property. A registration may cover a particular asset or a wider pool of the seller’s property.

A PPSR search is not a complete ownership certificate. Your lawyer should assess the search results alongside purchase invoices, finance documents, rental agreements and the proposed transaction structure.

Where a security interest affects equipment being sold, establish how the relevant assets will be released at settlement. The appropriate solution may involve repayment from the sale proceeds and a documented release from the secured party. Do not rely solely on the seller saying that finance will be paid off later.

For leased equipment, distinguish between buying the equipment and taking over the lease. The latter may require the owner’s consent and leave you responsible for continuing payments, return conditions or end-of-term charges.

3. Test condition against operational needs

A machine switching on during a viewing does not prove it can handle normal trading demand. Arrange suitably qualified inspections for equipment whose failure would interrupt trading or create a substantial expense.

Request maintenance records, service reports, warranty documents and details of recurring faults. Ask whether warranties and service arrangements can transfer to you; do not assume they follow the equipment automatically.

Useful questions include:

• Does the equipment perform reliably under normal operating loads?
• Are parts and qualified technicians readily available locally?
• Are there overdue services or recommended repairs?
• Will any essential software access or subscription continue after the sale?
• Does the franchisor accept the equipment for continued use by a new franchisee?

Ask the inspector to distinguish urgent repairs from routine maintenance and likely future replacement. Give those findings to your accountant so that your purchase budget reflects the equipment’s actual condition rather than its appearance.

For example, an apparently complete kitchen may still need immediate expenditure if a critical appliance has an unresolved fault. Decide before committing whether the seller must repair it, replace it or agree another contractual solution.

4. Make the settlement documents match the findings

New Zealand has no franchise-specific statute, mandatory franchise registration system or statutory franchise disclosure regime. General laws still apply, including the Fair Trading Act 1986, which prohibits misleading or deceptive conduct in trade, and the Contract and Commercial Law Act 2017, which addresses contractual matters and remedies for misrepresentation.

Within the franchising community, Franchise Association of New Zealand members must also comply with its applicable codes, including disclosure requirements. Membership and disclosure documents do not replace equipment inspections or ownership checks.

Have your lawyer translate the findings into clear sale obligations: the equipment included, agreed repairs, required consents, releases of security interests and the condition required at settlement. Arrange a final inspection close to settlement and ask your lawyer how discrepancies should be handled before funds are released.

Practical takeaway: For every essential item, establish three things before buying: your right to own or use it, its working condition and the cost of keeping it operational.