What do the lease payments include when calculating lease liabilities for Clear Pest Pros?
Clear_Pest_Pros Franchise · 2025 FDDAnswer from 2025 FDD Document
- Lease Liabilities – At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating the lease, if the lease term reflects the Company exercising the option to terminate.
Variable lease payments that do not depend on an index or a rate are recognized as expenses in the period in which the event or condition that triggers the payment occurs.
The Company has elected to combine lease and non-lease components. In calculating the present value of lease payments, the Company elected to use the Prime Rate at the lease commencement date for property leases. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 67)
What This Means (2025 FDD)
According to Clear Pest Pros' 2025 Franchise Disclosure Document, lease payments used to calculate lease liabilities include several components. These payments encompass fixed amounts, including those considered as essentially fixed, minus any lease incentives the company might receive. Additionally, the calculation incorporates variable lease payments that are tied to an index or rate, as well as any amounts expected to be paid under residual value guarantees.
Furthermore, the lease payments also factor in the exercise price of a purchase option if it is reasonably certain that Clear Pest Pros will exercise it. Payments for penalties for terminating the lease are included if the lease term reflects the company exercising the option to terminate. However, variable lease payments that do not depend on an index or a rate are recognized as expenses in the period in which the event or condition that triggers the payment occurs, rather than being included in the lease liability calculation at the commencement of the lease.
In calculating the present value of lease payments, Clear Pest Pros uses the Prime Rate at the lease commencement date for property leases. After the commencement date, the lease liabilities are adjusted to reflect the accretion of interest and reduced for the lease payments made. This comprehensive approach ensures that all relevant costs associated with the lease are considered when determining the company's lease liabilities.