What determines the lease term for Benihana's office and restaurant space leases?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
ease, we use our incremental borrowing rate to determine the present value of the lease payments. Our incremental borrowing rate is the rate of interest that we would have to borrow on a collateralized basis over a similar term on an amount equal to the lease payments in a similar economic environment.
The lease term at the lease commencement date is determined based on the non-cancellable period for which we have the right to use the underlying asset, together with any periods covered by an option to extend the lease if we are reasonably certain to exercise that option, periods covered by an option to terminate the lease if we are reasonably certain not to exercise that option, and periods covered by an option to extend (or not to terminate) the lease in which the exercise of the option is controlled by the lessor.
Certain of our leases also provide for percentage rent, which are variable lease costs determined as a percentage of gross sales in excess of specified, minimum sales targets.
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, the lease term is determined at the lease commencement date. This is based on the non-cancellable period for which Benihana has the right to use the underlying asset.
This also includes any periods covered by an option to extend the lease if Benihana is reasonably certain to exercise that option. It also factors in periods covered by an option to terminate the lease if Benihana is reasonably certain not to exercise that option. Finally, it includes periods covered by an option to extend (or not to terminate) the lease in which the exercise of the option is controlled by the lessor.
Management makes judgments regarding the probable term for each lease and considers a number of factors to evaluate whether renewal options in the lease contracts are reasonably certain of exercise. These factors include the length of time before option exercise, expected value of the leased asset at the end of the initial lease term, importance of the lease to overall operations, costs to negotiate a new lease, and any contractual or economic penalties. This indicates that Benihana carefully assesses various factors to determine the lease term, including potential renewal options and the economic implications of those options.