For Kitchen Solvers, when does management reassess its determination of whether a contract is a lease?

According to Kitchen Solvers' 2025 Franchise Disclosure Document, the determination of whether an arrangement is a lease is initially made at the lease's inception. Kitchen Solvers management only reassesses this determination if the terms and conditions of the contract are changed. This is based on accounting standards under ASC 842, which defines a lease as a contract conveying the right to control the use of an identified asset for a period in exchange for consideration. Control, in this context, means having both the right to obtain substantially all economic benefits from the asset's use and the right to direct its use.

For a prospective Kitchen Solvers franchisee, this means that the initial classification of any lease agreements they enter into (for example, for office or storage space) will be determined at the start of the lease. Kitchen Solvers, as a franchisor, will only re-evaluate this classification if there are changes to the original terms of the lease agreement. This is important for financial reporting and ensuring compliance with accounting standards.

This policy ensures that Kitchen Solvers adheres to accounting standards regarding lease classification, which impacts how leases are reported on their balance sheets. Operating leases are recognized as right-of-use assets and liabilities, while finance leases are included in property, equipment, and liabilities. Understanding this policy helps franchisees appreciate how lease agreements are treated in the company's financial statements and how changes to those agreements could trigger a reassessment.