How does Checkersrallys evaluate if the lease costs are fixed or variable in nature?
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 the company leases land and buildings, the leases generally obligate Checkersrallys to cover costs related to property taxes, insurance, and maintenance. Checkersrallys then evaluates these costs to determine if they are fixed or variable. If Checkersrallys concludes that these costs 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. These costs are then 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.
For a prospective Checkersrallys franchisee, understanding how lease costs are classified is crucial for financial planning and budgeting. Fixed lease costs provide predictability, while variable costs can fluctuate based on factors like property taxes and insurance rates. Franchisees should carefully review the lease terms and understand which costs they will be responsible for and how those costs are classified by Checkersrallys, as this will directly impact their operating expenses and profitability.