How are Remax's material leases classified?
Remax Franchise · 2025 FDDAnswer from 2025 FDD Document
- (a) All the Company's material leases are classified as operating leases.
The Company determines if an arrangement is a lease at inception. The Company's operating lease agreements are primarily for corporate office space and are included within "Operating lease right of use assets", "Operating lease liabilities" and "Operating lease liabilities, net of current portion' on the Consolidated Balance Sheets.
The Company's lease liabilities represent the obligation to make lease payments arising from the leases and right of use ("ROU") assets are recognized as an offset at lease inception. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Variable lease payments consist of non-lease services related to the lease. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Many of the Company's lessee agreements include options to extend the lease, which is not included in the minimum lease terms unless they are reasonably certain to be exercised. Lease cost expense for lease payments related to operating leases (which is substantially all of the Company's leases) is recognized on a straight-line basis over the lease term and is recorded to "Selling, operating and administrative expenses' in the Consolidated Statements of Income (Loss).
The Company has made an accounting policy election not to recognize ROU assets and lease liabilities that arise from any of its short-term leases. All leases with a term of 12 months or less at commencement, for which the Company is not reasonably certain to exercise available renewal options that would extend the lease term past 12 months, are recognized on a straight-line basis over the lease term.
Source: Item 1 — Business and Organization (FDD pages 334–464)
What This Means (2025 FDD)
According to Remax's 2025 Franchise Disclosure Document, the company classifies all of its material leases as operating leases. These operating lease agreements primarily cover corporate office space and are accounted for within "Operating lease right of use assets", "Operating lease liabilities" and "Operating lease liabilities, net of current portion" on the Consolidated Balance Sheets.
Remax recognizes right-of-use (ROU) assets and lease liabilities at the lease commencement date, based on the present value of lease payments over the lease term. Variable lease payments for non-lease services are excluded from ROU assets and lease liabilities and are recognized when the obligation is incurred. The company uses its incremental borrowing rate to determine the present value of lease payments, especially when the lease doesn't provide an implicit rate. Options to extend the lease are not included in minimum lease terms unless they are reasonably certain to be exercised.
For operating leases, which constitute substantially all of Remax's leases, the lease cost expense is recognized on a straight-line basis over the lease term and is recorded under "Selling, operating and administrative expenses" in the Consolidated Statements of Income (Loss). Remax has also elected not to recognize ROU assets and lease liabilities for short-term leases with a term of 12 months or less, recognizing these leases on a straight-line basis over the lease term.