Franchising in Taiwan: Defining Responsibilities for Refurbishment and Equipment Upgrades

Turning an existing business in Taiwan into a franchise network involves more than budgeting for the initial fit-out and equipment. Discontinued point-of-sale systems, ageing machinery and changes to brand identity may all require franchisees to invest again. Before recruiting franchisees, franchisors should establish clear rules for these updates, explaining which costs count as routine maintenance, which involve further capital investment, and how major changes will be negotiated.

1. Distinguish between maintenance, replacement and brand refurbishment

Do not bundle every update requirement into a single clause stating that ‘franchisees must comply with the franchisor’s instructions’. These three types of expenditure arise for different reasons, so responsibility for decisions and payment should be addressed separately.

• Routine maintenance: Work that preserves equipment’s existing functions, such as cleaning, servicing, replacing consumables and repairing components. Specify maintenance responsibilities, fault-reporting procedures and record-keeping requirements.
• Necessary replacement: Equipment that is unsafe to use or cannot be repaired, or an existing system that is no longer supported by its supplier. Explain how the need for replacement will be assessed and whether functionally equivalent alternatives are acceptable.
• Brand refurbishment: Changes to counters, lighting, signage or interior design required by the franchisor to maintain a consistent brand image. This is different from repairing faults, and maintenance clauses should not simply be used to make franchisees bear the cost.

Before offering franchises, compile an equipment inventory for company-owned outlets, recording purchase dates, maintenance history, warranty terms and the impact of downtime. Where reliable records are unavailable, identify the basis of any estimates and the uncertainties involved. Do not present a supplier’s recommended replacement cycle as a guaranteed service life.

2. Include future updates in franchise disclosures in Taiwan

Taiwan does not have a single dedicated franchise statute, but that does not mean franchising is unregulated. The Fair Trade Act and the Fair Trade Commission’s Principles for Handling Cases Concerning Franchisors’ Business Practices are important reference points. Contractual rights and obligations are also governed by general legislation, including the Civil Code.

Point 3 of the Principles covers pre-opening and operating costs, restrictions within the franchise relationship, and conditions for amending, terminating and rescinding the agreement. If the franchisor intends to require franchisees to buy new equipment from it or a designated supplier, or to pay for refurbishment, those requirements should be explained under the relevant disclosure headings according to the specific arrangements—not introduced only after an outlet has committed funds.

Important information must be provided ten days before a franchise or preliminary franchise business relationship is established, within a period considered reasonable in the individual case, or within a period agreed by both parties. The franchisor must also be able to prove that it supplied the information. Failure to provide the required information without proper justification may breach Article 25 of the Fair Trade Act if it constitutes obviously unfair conduct capable of affecting trading order.

Disclosures should distinguish between ‘confirmed plans’ and ‘possible future requirements’. If a system replacement is already planned, explain the expected timing, equipment involved, who will receive payment, and the amount or estimated cost. A refurbishment that has not yet been decided should not be framed as an unlimited spending commitment. Estimates should also state whether they include removal, installation, transport and any additional arrangements needed while the outlet is closed.

3. Set out the decision-making process in the agreement

An operations manual can specify equipment standards and maintenance methods, but it should not be treated as blanket authority to impose additional investment obligations on franchisees at any time. Franchisors should engage a lawyer familiar with franchise transactions in Taiwan to incorporate an update mechanism into the agreement, addressing at least the following matters:

Triggers and supporting evidence. In what circumstances can replacement be required? Safety concerns may be supported by inspection or repair reports. Brand refurbishment should be backed by a specific proposal, rather than a vague reference to ‘brand requirements’.

Notice and implementation periods. Notices should explain the reasons for the changes, scope of work, basis of quotations, work schedule and impact on trading. Emergency safety measures and routine brand updates should follow different procedures; immediate completion should not be demanded in every case.

Cost allocation and approval rights. Clarify who selects suppliers, who approves additional work and who bears any cost overruns. Where franchisees must pay, consider a budget cap, instalment arrangements or a requirement for separate written consent if the work exceeds the original scope. These are negotiable arrangements, not statutory standards.

Remaining contract term. Requiring substantial refurbishment shortly before an agreement expires can easily lead to disputes. The parties can agree in advance how to assess the remaining term, defer updates or share costs. However, paying for refurbishment should not be treated as a guarantee of renewal.

4. Test changes before rolling them out to franchisees

Brand updates should first be tested in company-owned outlets or suitable trial locations. The aim is not to repeat the entire franchise pilot process, but to establish whether the particular change is workable. Record actual project costs, closure periods, equipment compatibility and any difficulties staff have in adapting, then revise the rollout plan accordingly.

For example, replacing point-of-sale equipment involves more than comparing hardware prices. Check whether existing printers are compatible, whether data can be transferred and how transactions will continue if the switchover fails. For refurbishment, confirm site measurements, construction restrictions and completion standards rather than applying a demonstration outlet’s quotation to every location.

During the rollout, prepare an update confirmation checklist for each outlet, covering the applicable work, final quotation, payment milestones, completion checks and warranty contact. If certain outlets receive extensions or use alternative solutions, record the objective reasons so that the franchise network can understand the arrangements, rather than relying on verbal assurances.

Practical takeaway: Before recruiting franchisees, prepare a ‘maintenance, replacement and refurbishment responsibility matrix’ that clearly sets out decision-making authority, costs, notice requirements and the handling of exceptions. Then check that the disclosure documents and agreement are consistent. Brand standards can evolve, but additional investment should not come without warning.