Under ASC 842, how does Checkersrallys account for leases as both a lessee and a lessor?
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.
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.
Upon a business combination, U.S. GAAP requires leases, where the Company is a lessor and a lessee, recognize an asset or liability when the contractual lease payments are different than market lease payments, commonly referred to as an off-market component of a lease. Prior to the adoption of ASC 842, the Company recognized favorable leasehold interests and unfavorable leasehold interests for leases where the Company is a lessor and a lessee. As part of the adoption of ASC 842, Leases, on January 4, 2022, favorable and unfavorable leasehold interests for lease agreements where the Company is the lessee were reclassified as an adjustment to the "right-of-use assets, net."
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the company accounts for leases as both a lessee and a lessor in accordance with ASC 842, Leases. Checkersrallys leases real estate for restaurant operations and also acts as a sublessor for certain franchised restaurants. As a lessee, Checkersrallys is obligated under noncancelable leases, primarily ground leases, which in some instances are subleased to franchisees.
As a lessee, Checkersrallys 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 the exercise of renewal options that are reasonably certain to be exercised and evaluates the leases for classification as operating or finance leases. Checkersrallys 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 Checkersrallys to pay for costs associated with property taxes, insurance, and maintenance, which are evaluated as fixed or variable. Fixed lease costs for operating lease payments are recognized on a straight-line basis over the lease term and are included in various expense line items within the consolidated statement of operations.
Upon a business combination, U.S. GAAP requires leases, where Checkersrallys is a lessor and a lessee, to recognize an asset or liability when the contractual lease payments are different than market lease payments, commonly referred to as an off-market component of a lease. Prior to the adoption of ASC 842, Checkersrallys recognized favorable and unfavorable leasehold interests for leases where the company is a lessor and a lessee. As part of the adoption of ASC 842, favorable and unfavorable leasehold interests for lease agreements where Checkersrallys is the lessee were reclassified as an adjustment to the "right-of-use assets, net."