What components does 7 Brew account for separately within a lease agreement?

According to 7 Brew's 2025 Franchise Disclosure Document, the company distinguishes between lease and non-lease components within its lease agreements. Specifically, the lease components are identified as the buildings themselves. 7 Brew allocates consideration to these lease and non-lease components based on their relative standalone values. This means that when 7 Brew enters into a lease agreement, it assesses the value of the building separately from any other elements included in the agreement.

This accounting practice has implications for prospective franchisees as it affects how lease expenses are recognized. At the beginning of the lease, 7 Brew measures the lease liability at the present value of the lease payments over the lease term. The right-of-use (ROU) asset is then determined, equaling the lease liability adjusted for any initial direct costs, prepaid or deferred rent, and lease incentives. This approach ensures that the financial statements accurately reflect the obligations and rights associated with the leased property.

Furthermore, 7 Brew uses either the implicit rate, if readily determinable, or its incremental borrowing rate to determine the present value of lease payments. Lease expenses are generally recognized on a straight-line basis over the lease term. However, 7 Brew has elected not to record leases with an initial term of 12 months or less on the balance sheets, recognizing the lease expense for these short-term leases on a straight-line basis over the lease term. This detailed accounting treatment provides transparency and ensures compliance with accounting standards.