How does 1 800 Packouts determine if a contract is or contains a lease?
1_800_Packouts Franchise · 2025 FDDAnswer from 2025 FDD Document
Management determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset. Such assets are classified as ROU assets with a corresponding lease liability.
Source: Item 23 — RECEIPT (FDD pages 67–238)
What This Means (2025 FDD)
According to 1 800 Packouts's 2025 Franchise Disclosure Document, the determination of whether a contract is or contains a lease is made by management at the inception or modification of the contract. A contract is considered a lease if it conveys the right to control the use of an identified asset for a specific period in exchange for consideration.
Control over the use of the identified asset is defined as the lessee having both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. If these conditions are met, the assets are classified as Right-of-Use (ROU) assets, with a corresponding lease liability.
For a prospective 1 800 Packouts franchisee, this means that when entering into agreements for property or equipment, 1 800 Packouts will assess whether the agreement constitutes a lease based on these criteria. If it's determined to be a lease, it will be accounted for as such on the company's financial statements, impacting the franchisee's financial obligations and asset reporting.