What is included in the variable lease cost for Benihana?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
Certain of the Company's 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, as well as other lease costs to reimburse the lessor for real estate tax and insurance expenses, and certain non-lease components that transfer a distinct service to the Company, such as common area maintenance services. These percentage rents and other variable lease costs are not included in the calculation of lease payments when classifying a lease and in the measurement of the lease liability as they do not meet the definition of in-substance, fixed-lease payments under ASC Topic 842, Leases.
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, variable lease costs can include several components. Certain Benihana leases stipulate percentage rent, calculated as a percentage of gross sales exceeding specific minimum targets. These percentage rents are recognized as an expense once achieving the sales target is deemed probable.
Variable lease costs also encompass expenses to reimburse the lessor for real estate taxes and insurance. Additionally, these costs may include charges for common area maintenance services, which are considered distinct services provided to Benihana.
These variable lease costs, including percentage rent and reimbursements for taxes, insurance, and common area maintenance, are not factored into the initial calculation of lease payments when classifying the lease or measuring the lease liability. This is because they do not meet the criteria for fixed-lease payments under accounting standards.