How does Checkersrallys determine the lease term for its land and building leases?
Checkersrallys 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 Checkersrallys's 2025 Franchise Disclosure Document, when Checkersrallys leases land and buildings, it generally does so under agreements that have terms of, or are renewable to, 10 to 30 years. To determine the lease term, Checkersrallys assumes that it will exercise any renewal options if it is reasonably certain to do so. These leases are then evaluated to determine if they should be classified as operating or finance leases.
Checkersrallys has made a practical election to account for lease and non-lease components as a single lease component for all underlying asset classes. Typically, Checkersrallys is obligated to cover the costs of property taxes, insurance, and maintenance related to these leases. The company assesses whether these costs are fixed or variable. If the costs are determined to be fixed, they are included when calculating the lease liability.
Fixed lease costs for operating lease payments are recognized on a straight-line basis over the lease term. These costs are included in various expense line items within the consolidated statement of operations, such as restaurant occupancy costs, franchise support and services expenses, general and administrative expenses, and restaurant retirement costs. This accounting treatment ensures that lease expenses are consistently recognized over the duration of the lease, providing a clear picture of the financial obligations associated with Checkersrallys's leased properties.