What is the short-term lease exemption that Crepe De Licious applies?
Crepe_De_Licious Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company has elected to apply the short-term lease exemption to all classes of underlying assets that qualify for the exemption. These leases consist of terms of twelve months or less and do not contain any options to purchase the underlying asset that the lessee is reasonably certain to exercise. In addition, the Company has elected the practical expedient to account for any lease arrangements with parties under common control based on the written terms and conditions of the lease.
For leases that contain both lease and non-lease components, the Company has elected to apply the practical expedient that allows for the components to be combined and accounted for as a single lease component. For arrangements accounted for as a single lease component, there may be variability in future lease payments as the amount of the non-lease components and non-components is typically revised from one period to the next. These variable lease payments, which are primarily comprised of real estate taxes, utilities, property insurance and excess mileage fees are recognized in operating expenses in the period in which the obligation for those payments was incurred.
Source: Item 23 — RECEIPTS (FDD pages 57–233)
What This Means (2025 FDD)
According to Crepe De Licious's 2025 Franchise Disclosure Document, the company has elected to apply a short-term lease exemption to specific assets. This exemption applies to leases with terms of twelve months or less. Additionally, these leases cannot include any options for the lessee to purchase the underlying asset, ensuring that the company is not reasonably certain to exercise such an option.
This short-term lease exemption simplifies the accounting process for Crepe De Licious by allowing them to avoid recognizing right-of-use (ROU) assets and lease liabilities on the balance sheet for leases that meet these criteria. Instead, lease payments are typically recognized as expenses on a straight-line basis over the lease term. This can reduce the administrative burden and complexity associated with lease accounting, particularly for leases with short durations.
For a prospective Crepe De Licious franchisee, this policy indicates that the company is likely to have a streamlined approach to managing and accounting for short-term leases. Franchisees entering into short-term lease agreements (i.e., 12 months or less, with no purchase option) may benefit from this simplified accounting treatment, as it could reduce the need for complex lease accounting calculations and reporting. However, it is important for franchisees to understand the specific terms of their lease agreements and how they align with Crepe De Licious's accounting policies to ensure compliance and accurate financial reporting.
Furthermore, Crepe De Licious has elected a practical expedient to account for lease arrangements with parties under common control based on the written terms and conditions of the lease. For leases containing both lease and non-lease components, Crepe De Licious combines these and accounts for them as a single lease component. Variable lease payments, such as those for real estate taxes, utilities, property insurance, and excess mileage fees, are recognized as operating expenses in the period they are incurred.