What practical expedient has Checkersrallys elected to use when accounting for lease components and non-lease components?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
rtized initial direct costs before transition adjustments would have met the definition of initial direct costs in the new guidance at lease commencement.
The Company elected to adopt the available practical expedient to use hindsight in determining the lease term and in assessing impairment of the Company's right-of-use assets.
As both lessee and lessor, the Company elected the practical expedient to not separate lease and non-lease components, such as common area maintenance fees, by class of underlying asset and is applying this expedient to all relevant classes.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to the 2025 FDD, Checkersrallys has elected a practical expedient regarding lease and non-lease components. Specifically, Checkersrallys accounts for lease components and non-lease components as a single lease component for all underlying classes of assets. This means that items such as common area maintenance fees are not separated from the lease itself but are considered part of the overall lease agreement.
For a prospective Checkersrallys franchisee, this simplifies the accounting process related to leases. Instead of separately tracking and accounting for individual components like rent, property taxes, insurance, and maintenance, these are all treated as a single lease expense. This can reduce the complexity of financial reporting and potentially lower administrative costs associated with lease management.
It's important to note that this election applies to all underlying classes of assets, indicating a consistent approach across all of Checkersrallys' leased properties. The FDD also mentions that the leases generally obligate the company to pay for costs associated with property taxes, insurance, and maintenance, which are evaluated as fixed or variable in nature and included in the calculation of the lease liability if they are fixed.