Does Checkersrallys act as a sublessor for the operation of certain franchised restaurants?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company leases real estate for the operation of its restaurants as well as acts as a sublessor for the operation of certain franchised restaurants. As lessee, the Company is obligated under several noncancelable leases, primarily ground leases that in certain instances it also subleases to franchisees.
The Company accounts for leases as both a lessee and a lessor in accordance with ASC 842, Lease. For details on the Company's adoption of ASC 842, Leases and the related policy elections refer to Note 2.
Company as Lessor
The Company subleases land and buildings associated with the sale of certain Company-operated restaurants with terms of, or renewable to, 10 to 15 years with no option to purchase. The Company determines the sublease term by assuming exercise of renewal options that are reasonably certain to be exercised. The Company continues to be responsible for the rent payments to the original lessors. The subleases are evaluated for classification as operating, direct financing or sales-type 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 subleases generally obligate the sublessee to pay for costs associated with property taxes, insurance and maintenance costs and are considered to be variable. Variable sublease rental income recorded for the fiscal year ended December 30, 2024 (Successor) and the periods from June 17, 2023 through January 1, 2024 (Successor) and from January 3, 2023 through June 16, 2023 (Predecessor), was $0.1 million, $0.1 million, and $0.1 million, respectively.
The Company is the sublessor on operating leases. The revenue from these subleases is recorded in franchise fees and other income in the accompanying consolidated statements of operations. Sublease rental income recorded for fiscal year ended December 30, 2024 (Successor) and the periods from June 17, 2023 through January 1, 2024 (Successor) and from January 3, 2023 through June 16, 2023 (Predecessor) was $2.0 million, $1.9 million, and $1.0 million, respectively.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys' 2025 Franchise Disclosure Document, Checkersrallys does act as a sublessor for the operation of certain franchised restaurants. The document states that Checkersrallys leases real estate for the operation of its restaurants and also acts as a sublessor for some franchised restaurants. In some instances, Checkersrallys subleases ground leases to franchisees.
For a prospective franchisee, this means that in certain situations, Checkersrallys may lease the property where the restaurant is located and then sublease it to the franchisee. This arrangement could affect the franchisee's lease terms, rental payments, and relationship with the property owner, as Checkersrallys remains responsible for the rent payments to the original lessors. The subleases generally obligate the sublessee to pay for costs associated with property taxes, insurance, and maintenance costs, which are considered variable.
The sublease rental income that Checkersrallys recorded for the fiscal year ended December 30, 2024 (Successor) was $2.0 million. The sublease rental income recorded for the periods from June 17, 2023 through January 1, 2024 (Successor) and from January 3, 2023 through June 16, 2023 (Predecessor) was $1.9 million and $1.0 million, respectively. This income is recorded in franchise fees and other income in the consolidated statements of operations.
Checkersrallys subleases land and buildings associated with the sale of certain Company-operated restaurants with terms of, or renewable to, 10 to 15 years with no option to purchase. The subleases are evaluated for classification as operating, direct financing or sales-type leases. Variable sublease rental income recorded for the fiscal year ended December 30, 2024 (Successor) and the periods from June 17, 2023 through January 1, 2024 (Successor) and from January 3, 2023 through June 16, 2023 (Predecessor), was $0.1 million, $0.1 million, and $0.1 million, respectively.