How does Checkers determine the lease term for its land and building leases?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company leases land and buildings generally under agreements with terms of, or renewable to, 10 to 30 years. The Company determines the lease term by assuming exercise of renewal options that are reasonably certain to be exercised. The leases are evaluated for classification as operating or finance leases.
The Company has elected the practical expedient to account for lease components and non-lease components as a single lease component for all underlying classes of assets. The leases generally obligate the Company to pay for costs associated with property taxes, insurance and maintenance and are evaluated by the Company as fixed or variable in nature. If it is concluded that they are fixed, they are included in the calculation of the lease liability. Fixed lease costs for operating lease payments are recognized on a straight-line basis over the lease term and are included in the restaurant occupancy costs, franchise support and services expenses, general and administrative expenses and restaurant retirement costs line items within the accompanying consolidated statement of operations.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, when Checkers leases land and buildings, it generally does so under agreements with terms of 10 to 30 years, or agreements that are renewable to that length of time. Checkers determines the lease term by assuming that it will exercise any renewal options that are reasonably certain to be exercised. These leases are then evaluated to determine if they should be classified as operating or finance leases.
Checkers has elected a practical approach to account for lease and non-lease components as a single unit for all asset classes. Typically, Checkers is obligated to cover costs related to property taxes, insurance, and maintenance, which are then assessed as either fixed or variable. If these costs are deemed fixed, they are factored into the calculation of the lease liability. Fixed lease costs for operating leases are consistently recognized over the lease term and are included in various expense categories within the consolidated statement of operations, such as restaurant occupancy costs, franchise support and services, general and administrative expenses, and restaurant retirement costs.
For prospective franchisees, this means that the initial lease term for the restaurant location could range from 10 to 30 years, impacting long-term financial planning and obligations. The determination of whether Checkers will renew the lease, and the classification of the lease (operating or finance), can significantly affect the franchisee's financial statements and tax liabilities. Franchisees should seek clarification from Checkers regarding the specific terms of their lease agreement, including renewal options and cost responsibilities, to fully understand their financial obligations.