How is rent expense allocated within Benjamin Franklin Plumbing's consolidated statements of operations?
Benjamin_Franklin_Plumbing Franchise · 2025 FDDAnswer from 2025 FDD Document
Operating lease expense is recognized as a component of general and administrative expenses in the consolidated statements of comprehensive loss. There was no material short-term lease expense for the years ended December 31, 2024, 2023 and 2022. The Company excludes variable payments, such as common area maintenance, and operating expenses such as real estate taxes and insurance, from lease ROU assets and lease liabilities, to the extent not considered fixed, and instead expenses these costs as incurred.
For operating leases, the Company utilizes the private company practical expedient for discount rates and uses a risk-free rate when the discount rate is not readily determinable in the lease. The Company recognizes lease expense for fixed lease payments on operating leases on a straightline basis over the lease term, while variable lease payments are recognized as incurred.
The Company applies the short term lease exemption and does not recognize ROU assets and lease liabilities for leases with a lease term less than 12 months for all asset classes. The Company does not separate lease and nonlease components (such as common area maintenance) when amounts are fixed, determinable and combined within monthly lease payment.
Source: Item 22 — CONTRACTS (FDD pages 87–88)
What This Means (2025 FDD)
According to the 2025 FDD, Benjamin Franklin Plumbing recognizes operating lease expenses as part of general and administrative expenses within its consolidated statements of comprehensive loss. The company does not consider short-term lease expenses material. Variable payments like common area maintenance, real estate taxes, and insurance are excluded from lease right-of-use (ROU) assets and lease liabilities if they are not fixed; instead, these costs are expensed as they are incurred.
For operating leases, Benjamin Franklin Plumbing uses a practical expedient for discount rates suitable for private companies, employing a risk-free rate when a discount rate isn't readily available in the lease. The company recognizes lease expenses for fixed lease payments on operating leases on a straight-line basis over the lease term, while variable lease payments are recognized as they are incurred.
Benjamin Franklin Plumbing also applies a short-term lease exemption, meaning they do not recognize ROU assets and lease liabilities for leases with terms less than 12 months for any asset class. Furthermore, the company does not separate lease and non-lease components, such as common area maintenance, when these amounts are fixed, determinable, and combined within the monthly lease payment. This accounting approach could affect how a franchisee interprets their financial statements and manage their lease-related expenses.