Franchising in the Philippines: Who Owns the Equipment?

A franchise offer may include machinery, refrigerators, computers and other equipment. But the word “included” is not enough to prove that these items will become your property. In franchising, it is important to distinguish between what you are buying, renting or simply borrowing. Before paying, establish which assets you will receive and how long you will be entitled to use them.

1. Separate ownership from permission to use

Ask for a detailed equipment list to be attached to the contract. Do not settle for descriptions such as “complete package” or “ready to trade”. For each item, the list should specify:

• Type, brand, model, quantity and identifying details, where available.
• Condition: new, used or refurbished.
• The name of the owner and the company responsible for delivery.
• Whether it is being sold, rented or lent to you.
• When ownership will transfer and under what conditions.

For example, you might be paying to have a drinks machine installed while ownership remains with the supplier. Alternatively, it might become yours only once you have paid all the instalments. These are different arrangements, even if both are described as part of the start-up package.

Also ask who owns any replacement equipment supplied when an item is faulty. If this is unclear, it could cause problems later when recording assets, obtaining a loan or selling the business.

2. Match the price to the paperwork you will receive

Ask for the cost of the equipment to be itemised separately from fees for using the brand, training and other services. A high total fee does not mean you are buying every physical item in the package.

For equipment being sold to you, request the appropriate sales documents and proof of delivery. The buyer’s name, equipment description, price and terms should match those in the contract. Proof that you have received a machine is not, on its own, enough to settle every question about ownership.

If another company owns the equipment, ask for a separate agreement or a clear contract attachment covering its use. Find out whether the equipment is subject to an existing loan, security interest or other third-party rights. Ask a lawyer whether further checks are needed.

Before accepting delivery, compare the actual equipment with the list. Photograph its condition and identification numbers. Record any missing items, damage or incorrect models before signing an acceptance without reservations.

3. Understand the law governing the agreement

The Philippines has no single comprehensive law governing every aspect of franchising. However, this does not mean there are no specific rules. Executive Order No. 169, series of 2022, sets out protections and minimum terms for franchise agreements within its scope involving micro, small and medium-sized enterprises.

The Civil Code is also important. Under Article 1306, parties may set contractual terms provided these do not contravene the law, morals, good customs, public order or public policy. This makes it essential to clearly document what has been agreed about sales, rental, lending and the transfer of ownership.

The Intellectual Property Code may also apply where licensing or technology transfer is involved. Owning a computer or machine does not automatically give you an indefinite right to use the software, system or brand associated with it.

Have a lawyer review the related documents together: the franchise contract, the equipment agreement and any loan agreement. They should not contradict one another about who owns the equipment or when it can be taken back.

4. Check the implications for borrowing and continued use

If you are borrowing to finance the equipment, show the lender the actual arrangement. Do not assume you can use a machine as security for a loan if you are merely renting or borrowing it. The lender may require different documents if ownership has not yet transferred to you.

Clarify the following before signing:

• Can the equipment be moved to another location with permission?
• Who can take it back, and on what grounds?
• Is advance notice required before it is taken back?
• Can it still be used if permission to use the associated software ends?
• Will instalments remain payable even if the equipment can no longer be used?

When assessing the value of the offer, do not count equipment you must return as your own assets. Nor should you assume it has a high resale value if its use depends on a system controlled by someone else.

Practical reminder: Before paying, make sure you have an equipment list, clearly identified ownership, and written terms covering use and transfer of ownership. “Included in the package” is only the starting point for your questions—not proof that the equipment is yours.