For Noodles & Company, in instances where the company sells company-owned restaurants to franchisees and the lease agreements are assigned, what condition causes the leases to be treated as subleases?
Noodles_Company Franchise · 2025 FDDAnswer from 2025 FDD Document
| The Company records sublease income related to leases for which the Company remains obligated. The Company has entered into | |
|---|---|
| transactions to sell company-owned restaurants to franchisees. The lease agreements for those restaurants were assigned to the | |
| franchisee, but in some instances, the Company was not relieved of its primary obligations under the main lease, therefore these | |
| leases are treated as subleases. The lease income on these locations has been recorded in “Franchising royalties and fees, and | |
| other” and the offsetting lease expense has been recorded in “Restaurant impairments, closure costs and asset disposals” in the | |
| Consolidated Statement of Operations. |
Source: Item 23 — RECEIPT (FDD pages 99–350)
What This Means (2025 FDD)
According to the 2025 Noodles & Company Franchise Disclosure Document, when Noodles & Company sells company-owned restaurants to franchisees and assigns the lease agreements, the leases are treated as subleases if Noodles & Company remains obligated under the original lease.
In these situations, Noodles & Company records the lease income from the franchisee in "Franchising royalties and fees, and other." The corresponding lease expense is recorded in "Restaurant impairments, closure costs and asset disposals" within the Consolidated Statement of Operations.
This accounting treatment reflects the fact that while the franchisee is operating the restaurant and paying rent, Noodles & Company is still ultimately responsible for the lease obligations to the landlord. This could create a potential liability for franchisees if Noodles & Company defaults on its lease obligations.