Why is rent expense omitted from Exhibit 4 in the 7 Brew FDD?
7_Brew Franchise · 2025 FDDAnswer from 2025 FDD Document
Rent expense is omitted from Exhibit 2 because of the wide variation in rental payment amounts of which we are aware across the Measured Stores, which is due primarily to the different
rental structures under which such Measured Stores have been leased. The Measured Stores include (1) real property that is leased on a "ground lease" basis with the tenant (the Store operator) being obligated for all (or the substantial portion of) the development costs relating to the Store, (2) real property that is leased on a "build-to-suit" basis with the landlord being obligated for all (or the substantial portion of) the development costs relating to the Store, (3) real property that is purchased by an affiliate of the tenant (the Store operator) and then leased to the tenant in a nonarms-length manner, and (4) real property that is purchased directly by the Store operator. Regardless of the structure for leasing or acquiring the property upon which the Store will operate, which the franchisee controls based on its business objectives and structure and the market in which it operates, we generally advise that rent expense should be no more than 5% of the Store's Gross Sales.
Source: Item 19 — FINANCIAL PERFORMANCE REPRESENTATIONS (FDD pages 61–73)
What This Means (2025 FDD)
According to 7 Brew's 2025 Franchise Disclosure Document, rent expense is omitted from Exhibit 4 due to the significant variation in rental payment amounts across the Measured Stores. This variation is primarily attributed to the different rental structures under which these stores are leased. These structures include ground leases where the tenant covers development costs, build-to-suit leases where the landlord covers development costs, properties purchased by an affiliate and leased to the tenant, and properties directly purchased by the store operator.
This omission is consistent across both company-owned and franchised stores, as rent is also omitted from Exhibit 6, which pertains to franchised locations, for the same reasons. The different leasing and acquisition structures give the franchisee control based on their business objectives, structure, and the market in which they operate.
Despite the omission of specific rent figures, 7 Brew generally advises that rent expense should be no more than 5% of the store's gross sales. This guidance provides a benchmark for prospective franchisees to consider when evaluating potential locations and negotiating lease terms. The FDD emphasizes that the franchisee has control over the leasing or acquisition structure, allowing for flexibility but also requiring careful consideration of costs.