What does Cost Cutters Family Hair Salon consider to be a lease?
Cost_Cutters_Family_Hair_Salon Franchise · 2024 FDDAnswer from 2024 FDD Document
At contract inception, the Company determines whether a contract is, or contains, a lease by determining whether it conveys the right to control the use of the identified asset for a period of time. If the contract provides the Company the right to substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the identified asset, the Company considers it to be, or contain, a lease. The Company leases its company-owned salons and some of its corporate facilities under operating leases. The original terms of the salon leases range from one to 11 years with many leases renewable for an additional five to 10-year term at the option of the Company. In addition to the obligation to make fixed rental payments for the use of the salons, the Company also has variable lease payments that are based on sales levels. For most leases, the Company is required to pay real estate taxes and other occupancy expenses.
The Company leases salon premises in which the majority of its franchisees operate and has entered into corresponding sublease arrangements with franchisees. All lease-related costs are passed through to franchisees. The Company records the rental payments due from franchisees as franchise rental income and the corresponding amounts owed to landlords as franchise rent expense on the Consolidated Statements of Operations.
Source: Item 23 — RECEIPT (FDD pages 76–439)
What This Means (2024 FDD)
According to Cost Cutters Family Hair Salon's 2024 Franchise Disclosure Document, the company determines whether a contract is or contains a lease at the contract's inception. This determination hinges on whether the contract conveys the right to control the use of an identified asset for a specific period. If the contract grants the company the right to substantially all of the economic benefits derived from using the identified asset and the right to direct its use, Cost Cutters Family Hair Salon considers it a lease.
Cost Cutters Family Hair Salon leases its company-owned salons and some corporate facilities under operating leases. The original terms of these salon leases typically range from one to 11 years, with options to renew for an additional five to 10 years. In addition to fixed rental payments, the company may also have variable lease payments based on sales levels. Generally, Cost Cutters Family Hair Salon is required to cover real estate taxes and other occupancy expenses for most leases.
Furthermore, Cost Cutters Family Hair Salon leases salon premises in which the majority of its franchisees operate and has corresponding sublease arrangements with franchisees. All lease-related costs are passed through to franchisees. The company records the rental payments due from franchisees as franchise rental income and the corresponding amounts owed to landlords as franchise rent expense on the Consolidated Statements of Operations.