What was the amount of the build-out incentive included in the terms of Exit's Lakeville, Minnesota office lease?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
| 2023 | 2022 | ||
|---|---|---|---|
| Deferred revenues – beginning of year | $ 253,796 | $ 317,558 | $ 308,853 |
| Additions for initial franchise fees received | 40,000 | 33,750 | 80,000 |
| Additions for renewal fees received | 25,750 | 19,500 | 28,250 |
| Additions for assignment fees received | 10,750 | 8,625 | 18,000 |
| Reduction for amounts deemed uncollectible | - | (10,100) | - |
| Revenue recognized during the year | (106,088) | (115,536) | (117,545) |
| Deferred revenues – end of year | $ 224,208 | $ 253,796 | $ 317,558 |
Upper Midwest Realty, Inc. d.b.a. Exit Realty Upper Midwest 22 Notes to Financial Statements (continued) December 31, 2024, 2023, and 2022
NOTE 6 – CONTRACT BALANCES (continued)
At December 31, 2024, deferred revenues are expected to be recognized as revenue over the remaining term of the associated franchise agreements as follows:
| 2025 | $ | 96,182 | |
|---|---|---|---|
| 2026 | 63,225 | ||
| 2027 | 34,791 | ||
| 2028 | 20,184 | ||
| 2029 | 9,826 | ||
| Total deferred revenues | $ | 224,208 |
NOTE 7 – OPERATING LEASES
The Company entered into a lease agreement commencing April 3, 2017, for office space in Lakeville, Minnesota. The agreement expires on February 29, 2028, and calls for monthly rent ranging from $3,754 to $6,760. In addition to base rent, the Company is charged for its share of operating expenses and taxes. Included in the terms of the lease is a build-out incentive of $322,000. The deferred lease incentive was being amortized over the life of the lease on a straight-line basis. As of January 1, 2022, the remaining unamortized deferred lease incentive of $189,111 was reclassified to operating lease ROU assets as part of the implementation of ASC 842. The deferred lease incentive was fully amortized as of December 31, 2022.
The lease agr
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the company entered into a lease agreement for office space in Lakeville, Minnesota, commencing on April 3, 2017. The lease, which expires on February 29, 2028, included a build-out incentive of $322,000. This incentive was designed to offset the costs associated with preparing the space for Exit's operations. The monthly rent for the space ranged from $3,754 to $6,760, and the company was also responsible for its share of operating expenses and taxes.
The $322,000 build-out incentive was initially recorded as a deferred lease incentive and was amortized over the life of the lease using the straight-line method. As of January 1, 2022, the remaining unamortized portion of $189,111 was reclassified to operating lease Right-of-Use (ROU) assets due to the implementation of ASC 842, an accounting standard. By December 31, 2022, the deferred lease incentive was fully amortized, meaning its value had been completely recognized as an expense over the lease term.
This lease agreement also contained a clause allowing the landlord to terminate the lease under specific conditions, such as the premises becoming wholly untenantable or experiencing significant damage not covered by insurance. Additionally, if Exit remained in possession of the premises after the lease termination date without a new lease agreement, the occupancy would be considered a month-to-month tenancy, with rent set at 150% of the annual minimum rent, along with all other original lease conditions and obligations.