7. COMMITMENTS AND CONTINGENCIES

The following table summarizes our contractual obligations as of March 31, 2020 (in thousands):

Leases

We have operating leases for our corporate offices.

Operating leases with a term of 12 months or longer are included in ROU assets, other current liabilities, and operating lease liabilities on our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities on our consolidated balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use the incremental borrowing rate of comparable companies from a representative peer group selected based on industry and market capitalization. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Vancouver lease arrangements

We had a lease agreement for office space in Vancouver, British Columbia, which expired in January 2019. Pursuant to the lease agreement, we had the option to terminate the lease early without penalty at any time after January 1, 2017 so long as we provide three months prior written notice to the landlord. This lease was not renewed. This lease was classified as an operating lease.

On November 19, 2018, we entered into a lease agreement, or the Vancouver Lease, for new office space in Vancouver, British Columbia, which commenced on February 1, 2019. Pursuant to the terms of the lease agreement, we leased approximately 2,367 square feet located at Suite 1030, The Grosvenor Building, 1040 West Georgia Street, Vancouver, B.C. The initial term of the Vancouver Lease will expire on January 31, 2023, with an option to extend the term for one further four-year period, at a base rent as agreed upon between the parties with a minimum value equal to the base rent payable in the last year of the initial term. The monthly base rent for the premises was approximately $5,200 commencing on February 1, 2019, and on February 1, 2021, will increase up to approximately $5,400. The landlord provided us with a construction allowance of approximately $14,200. In addition, we paid a security deposit of approximately $18,600 upon entering into the lease agreement. The security deposit was reduced by the first month’s rent and operating expenses upon commencement of the Vancouver Lease. The Vancouver Lease was classified as an operating lease.

Future minimum lease payments under the Vancouver lease are as follows (in thousands):

Seattle lease arrangement

On December 11, 2017, we entered into a lease, or the Seattle Lease, with 520 Pike Street, Inc., or Pike, pursuant to which we leased approximately 3,187 square feet located at Suite 2250 at 520 Pike Tower, Seattle, Washington, 98101, which commenced on March 1, 2018. The initial term of the Seattle Lease will expire at the end of the month on the third anniversary of the Seattle Lease.

Our monthly base rent for the premises started at approximately $11,685 which commenced on March 1, 2018 and will increase on an annual basis up to approximately $12,397. In addition, we paid a security deposit to Pike in the amount of $37,192, subject to periodic reductions in the amount of $12,397 after each of the first and second anniversaries of the Seattle Lease, which Pike may retain for base rent or other damages, in the event of our default under the Seattle Lease.

We may not assign or sublet all or any portion of the premises without the consent of Pike, and Pike shall be entitled to 50% of any profit which we may receive above and beyond the rental price of the Seattle Lease. Upon receipt of notice of our intent to assign or sublease any portion of the leased premises, Pike may terminate that portion of the premises within 30 days, and provided, that if such portion constitutes 50% or more of the total square footage of the premises, Pike may terminate the Seattle Lease in its entirety. The Seattle Lease was classified as an operating lease.

The future minimum annual lease payments under the Seattle Lease are as follows (in thousands):

Consolidated lease and operating expense relating to the Vancouver, British Columbia, and Seattle, Washington offices for the three months ended March 31, 2020 was $0.1 million. Consolidated rent expense for the three months ended March 31, 2019 was $0.1 million.  

Other information related to leases was as follows:

Guarantees and Indemnifications

We indemnify our officers, directors and certain consultants for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at its request in such capacity. The term of the indemnification period is equal to the officer’s or director’s lifetime.

The maximum amount of potential future indemnification is unlimited; however, we have obtained director and officer insurance that limits our exposure and may enable us to recover a portion of any future amounts paid. We believe that the fair value of these indemnification obligations is minimal. Accordingly, we have not recognized any liabilities relating to these obligations as of March 31, 2020.

We have certain agreements with certain organizations with which we do business that contain indemnification provisions pursuant to which we typically agree to indemnify the party against certain types of third-party claims. We accrue for known indemnification issues when a loss is probable and can be reasonably estimated. There were no accruals for or expenses related to indemnification issues for any period presented.