What is the scope exception for leases that Exit uses, regarding the lease term length?

According to Exit's 2025 Franchise Disclosure Document, the company utilizes a short-term scope exception for leases. This exception applies to leases with a term of twelve months or less. This means that Exit is not required to include Right-of-Use (ROU) assets and lease liability obligations on their balance sheets for leases that fall under this short-term exception.

For a potential Exit franchisee, this accounting practice could have implications for their own lease agreements. If a franchisee enters into a lease agreement for their office space that is twelve months or less, they may qualify for this short-term scope exception. This could simplify their financial reporting, as they would not need to recognize ROU assets and lease liabilities on their balance sheet for these short-term leases.

It is important for prospective franchisees to understand the specific criteria and requirements for qualifying for this short-term scope exception under ASC 842. They should consult with their own accounting advisors to determine whether their lease agreements meet the necessary conditions. Additionally, franchisees should be aware of how Exit accounts for leases with terms longer than twelve months, as these leases will be subject to different accounting treatment and require the recognition of ROU assets and lease liabilities.