Under what conditions does Crowne Plaza remeasure the carrying amount of its lease liabilities?
Crowne_Plaza Franchise · 2025 FDDAnswer from 2025 FDD Document
After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for lease payments made. The carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term or a change in the lease payments as a result of a rent review or change in the relevant index or rate.
Source: Item 23 — Receipts (FDD pages 100–424)
What This Means (2025 FDD)
According to the 2025 FDD, Crowne Plaza remeasures the carrying amount of its lease liabilities under specific circumstances. These circumstances include modifications to the lease agreement, changes in the lease term, or alterations in lease payments resulting from rent reviews or changes in the relevant index or rate used to determine the lease payments.
For a prospective Crowne Plaza franchisee, this means that the initial lease liability established at the commencement of the lease can be adjusted during the lease term if any of these conditions occur. For example, if the franchisee and franchisor agree to modify the lease terms, such as extending the lease duration or changing the amount of fixed payments, the lease liability will be remeasured to reflect these changes. Similarly, if the lease payments are tied to an index like the Consumer Price Index (CPI) and that index changes, the lease liability will be adjusted accordingly.
This remeasurement can impact the franchisee's financial statements, as it affects the reported lease liability and the corresponding right-of-use asset. Increases in the lease liability would generally result in an increase in the right-of-use asset, while decreases would result in a corresponding decrease in the asset. These adjustments can also affect the franchisee's expenses, particularly the interest expense recognized on the lease liability. Therefore, it is important for franchisees to carefully monitor any changes to the lease terms or payment conditions and understand how these changes will impact their financial position and performance.
In the context of operating leases, Crowne Plaza recognizes lease expenses related to fixed payments on a straight-line basis over the lease term. Variable lease payments not linked to an index or rate are recognized as an expense in the period when the event triggering the payment occurs. This distinction is important for franchisees to understand, as it affects how lease expenses are recognized in their income statement.