When was the deferred lease incentive fully amortized for Exit's Lakeville office space?
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) D
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the deferred lease incentive for the Lakeville, Minnesota office space was fully amortized as of December 31, 2022. The company had entered into a lease agreement for this office space on April 3, 2017, which was set to expire on February 29, 2028. The lease included a build-out incentive of $322,000, which Exit initially amortized over the life of the lease using the straight-line method.
However, on January 1, 2022, the remaining unamortized portion of the deferred lease incentive, amounting to $189,111, was reclassified to operating lease Right-of-Use (ROU) assets as part of the implementation of ASC 842, which relates to lease accounting standards. This reclassification did not change the overall amortization schedule, and the remaining balance was fully amortized by the end of 2022.
For a prospective Exit franchisee, this information provides insight into how Exit manages its lease obligations and incentives. It also demonstrates the impact of accounting standards on the company's financial statements. While this specific lease relates to Exit's corporate office, it gives franchisees an example of how lease incentives are treated and amortized, which could be relevant if franchisees negotiate similar incentives for their own office spaces.