How does City Wide determine if an arrangement is a lease or contains a lease?
City_Wide Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company determines if an arrangement is a lease or contains a lease at inception. Leases result in the recognition of ROU assets and lease liabilities on the consolidated balance sheets. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease, measured on a discounted basis. The Company determines lease classification as operating or finance at the lease commencement date.
The Company combines lease and nonlease components, such as common area and other maintenance costs, in calculating the ROU assets and lease liabilities for all leases.
At lease inception, the lease liability is measured at the present value of the lease payments over the lease term. The ROU asset equals the lease liability adjusted for any initial direct costs, prepaid or deferred rent, and lease incentives. The Company has made a policy election to use a risk-free rate (the rate of a zero-coupon U.S. Treasury instrument) for the initial and subsequent measurement of all lease liabilities. The risk-free rate is determined using a period comparable with the lease term.
The lease term may include options to extend or to terminate the lease that the Company is reasonably certain to exercise. Lease expense is generally recognized on a straight-line basis over the lease term.
The Company has elected not to record leases with an initial term of 12 months or less on the consolidated balance sheets. Lease expense on such leases is recognized on a straight-line basis over the lease term.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 65)
What This Means (2025 FDD)
According to City Wide's 2025 Franchise Disclosure Document, the company determines if an arrangement is a lease or contains a lease at the beginning of the agreement. Leases lead to the recognition of right-of-use (ROU) assets and lease liabilities on the consolidated balance sheets. ROU assets represent the right to use an underlying asset for the lease term, while lease liabilities represent the obligation to make lease payments arising from the lease, measured on a discounted basis. City Wide determines lease classification as operating or finance at the lease commencement date.
City Wide combines lease and nonlease components, such as common area and other maintenance costs, in calculating the ROU assets and lease liabilities for all leases. At the start of the lease, the lease liability is measured at the present value of the lease payments over the lease term. The ROU asset equals the lease liability adjusted for any initial direct costs, prepaid or deferred rent, and lease incentives. City Wide uses a risk-free rate (the rate of a zero-coupon U.S. Treasury instrument) for the initial and subsequent measurement of all lease liabilities. The risk-free rate is determined using a period comparable with the lease term.
The lease term may include options to extend or terminate the lease that City Wide is reasonably certain to exercise. Lease expense is generally recognized on a straight-line basis over the lease term. However, City Wide has elected not to record leases with an initial term of 12 months or less on the consolidated balance sheets. Lease expense on such short-term leases is recognized on a straight-line basis over the lease term.