We determine if an arrangement is a lease at contract inception. If there is an identified asset in the contract (either explicitly or implicitly) and we have control over its use, the contract is (or contains) a lease. In determining if there is an identified asset, we apply judgment in assessing whether the supplier has a substantive substitution right based on the supplier’s practical ability to substitute the asset and the economic benefit to do so. If it is determined that a substantive substitution right exists, the contract is not a lease and is not accounted for under ASC Topic 842. With the respect to the servers utilized in certain of our hosting and data storage arrangements, the Company determined that a substantive substitution right existed given the location of the servers at the supplier’s premises, a lack of contractual restrictions preventing the supplier from substituting the servers throughout the period of use and the economic incentive for the supplier to substitute the servers as needed in order to efficiently handle varying levels of demand from its various customers.

In connection with the Building Sale, the Company executed a leaseback of approximately 185,000 square feet of the Building over a 12-year term, where we expect to continue operating our headquarters. The agreement provides the Company two separate options to extend the lease for eight years each and a third option to extend the lease for six years (for a total of an additional 22 years). At lease inception, the Company determined it was not reasonably certain to exercise any of the options to extend. The net initial base rent will be approximately $10.7 million for the first year of the lease and may increase by an annual amount not to exceed 3.25% per year.

Our remaining operating leases are also primarily for office facilities. Certain leases include options to extend the lease for a set number of years or early terminate the lease prior to the contractually defined expiration date. We include such extension periods in the lease term only when it is reasonably certain that they will be exercised and include such periods beyond the early termination date when it is reasonably certain the early terminations will not be exercised. As of December 31, 2019, the weighted-average remaining lease term for all of our operating leases was 9.9 years.

We record right-of-use assets and current and non-current operating lease liabilities in our consolidated balance sheet for operating leases with lease terms greater than 12 months. We have elected not to apply the balance sheet recognition requirements to leases with lease terms of 12 months or less (“short-term leases”). Additionally, we do not separate lease components from non-lease components and therefore allocate the entire consideration to the lease component(s).

Right-of-use assets represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments. Right-of-use assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the total required fixed payments over the lease term, with the right-of-use assets further adjusted for any payments made prior to lease commencement, lease incentives received and/or initial direct costs incurred. Certain lease arrangements also include variable payments for costs such as common-area maintenance, utilities, taxes or other operating costs, which are based on a percentage of actual expenses incurred or a fluctuating rate which is unknown at the inception of the contract. These variable lease payments are excluded from the measurement of the right-of-use assets and lease liabilities.

In determining the present value of lease payments, we discount future lease payments using our incremental borrowing rate since the implicit rate in our various leases is unknown. The incremental borrowing rate is determined at lease commencement for each individual lease and is based on a number of factors, including relevant observable debt transactions, the current economic environment, lease term and currency in which the lease is denominated. As of December 31, 2019, the weighted-average incremental borrowing rate for our operating leases was 4.3%.

We recognize lease expense for operating leases and short-term leases on a straight-line basis over the lease term. Variable lease payments are recognized when the underlying uncertainty is resolved, which is generally when the obligation for those costs are incurred. These expenses are presented as operating expenses in the consolidated statement of operations. For the year ended December 31, 2019, the components of lease expense were as follows (in thousands):

	Year Ended December 31,
	2019
Operating lease expense	$	15,106
Variable lease expense		4,562
Total lease expense ⁽¹⁾	$	19,668

For the year ended December 31, 2019, supplemental cash and noncash information related to operating leases, excluding any transition adjustments, was as follows (in thousands):

	Year Ended December 31,
	2019
Fixed operating lease payments	$	16,681
Right-of-use assets obtained in exchange for operating lease liabilities (noncash)		138,905

As of December 31, 2019, future lease payments related to our operating leases were as follows (in thousands):

Year ending December 31:	Operating Leases
2020	$	21,753
2021		20,908
2022		17,315
2023		16,591
2024		14,196
Thereafter		90,955
Total lease payments		181,718
Less: Imputed interest		(35,664	)
Total lease liability balance	$	146,054

We do not have any leases that have not yet commenced that create significant rights and obligations as of December 31, 2019.

During the third quarter of 2018, we executed an assignment of our Oxford office lease associated with our fourth quarter 2017 restructuring plan. The original lease term ends in November 2022. All terms under the original lease were assigned in full to the assignee, with the assignee becoming primarily liable to make rental payments directly to the landlord. Further, the assignee was required to provide the landlord a security deposit equal to twelve months rent to be used by the landlord in the event of the assignee’s non-performance.

In connection with the assignment, the Company became secondarily liable in the event the assignee is unable to perform under the lease. Based on the current rent and related payments, the maximum exposure to the Company is estimated to be $1.7 million as of December 31, 2019. However, the lease is subject to periodic rate reviews which allow the landlord to make market adjustments to the rent and other related payments and accordingly, the maximum exposure may be greater than this amount. As of December 31, 2019, the estimated fair value of this guarantee is not material.

As noted previously, prior to July 1, 2019, we owned the land and building where our San Francisco headquarters is located and had operating lease arrangements with various third-party tenants for the remaining available office space. However, in connection the Building Sale, effective July 1, 2019, the Company sold all preexisting leases between the Company and its tenants to the buyer. As a result, all lessor related assets and liabilities were de-recognized upon closing.

We do not separate lease components from non-lease components and therefore allocate the entire consideration in our contracts to the lease components. All of the lease and non-lease components qualify for accounting under ASC Topic 842.

For the year ended December 31, 2019 the components of lease income were as follows (in thousands), all of which was recognized prior to the Building Sale and was recorded within other income (expense), net in our consolidated statement of operations:

	Year Ended December 31,
	2019
Operating lease income	$	10,563
Variable lease income		1,103
Total lease income	$	11,666