17. Commitments and Contingencies

Commitments

In the ordinary course of business, certain liens related to the construction of the student housing real estate property may be attached to the Company’s assets by contractors or suppliers. Campus Crest Construction, LLC, a wholly-owned subsidiary of the Company, is responsible as the general contractor for resolving these liens. There can be no assurance that the Company will not be required to pay amounts greater than currently recorded liabilities to settle these claims.

The Company has properties that are subject to long-term ground leases. Typically, these properties are located on the campuses of colleges or universities. The Company has the right to encumber its leasehold interests with specific property mortgages for the purposes of constructing, remodeling or making improvements on or to these properties. Title to all improvements paid for and constructed on the land remains with the Company until the earlier of termination or expiration of the lease, at which time the title of any buildings constructed on the land will revert to the landlord. Should the Company decide to sell its leasehold interests during the initial term or any renewal terms, the landlord has a right of first refusal to purchase the interests for the same purchase price under the same terms and conditions as contained in the Company’s offer to sell its leasehold interests.

Campus Crest leases space for its corporate headquarters office. Rent is recognized on a straight-line basis. Future minimum payments over the life of the Company’s corporate office lease and long-term ground leases subsequent to December 31, 2014 are as follows (in thousands):

2015	$	1,293
2016		1,304
2017		1,320
2018		1,309
2019		1,327
Thereafter		26,821	⁽¹⁾
Total future minimum lease payments	$	33,374

⁽¹⁾

The Company’s lease obligations total approximately $1.3 million per year through the year 2023. In addition to operating and office leases, the Company has ground leases that average $0.4 million per year through the year 2081.

The Company paid rent related to its corporate headquarters office of $1.2 million, $0.9 million and $0.6 million for the years ended December 31, 2014, 2013 and 2012, respectively.

The Company guarantees certain mortgage and construction loans and revolving credit facilities related to the Company’s unconsolidated joint ventures. As of December 31, 2014, the Company guarantees: up to 100% of $32.5 million of debt through May 2015 for HSRE I; up to 50% of $144.1 million of debt with varying maturity dates from March 2015 through September 2018 for HSRE V, HSRE VI and HSRE X; and up to 25% of $90.2 million of debt maturing in July 2016 related to HSRE IX. Of the amounts guaranteed for HSRE V, $13.3 million relates to a property that was sold on January 30, 2015, as described in Note 19. In connection with the guarantee for HSRE I, there is $3.0 million held in escrow that could be used to satisfy a portion of the amount potentially paid under the guarantee. Should there be an event of default in connection with this debt, the Company could be required to fund under these guarantees a maximum amount up to the percentage of the guaranteed amount of the balance of the debt outstanding as of December 31, 2014. The Company estimated the fair value of the guarantees to be approximately $9.4 million, $3.2 million of which relates to the Company's HSRE I investment and is netted against its investment and $6.2 million of which relates to the Company's HSRE V investment and is netted against the value of the investment to the extent the investment is reduced to zero. Following the reduction of the HSRE V investment to zero, a remaining accrual of $4.5 million is presented in other liabilities in the accompanying consolidated balance sheet as of December 31, 2014.

In connection with the Company’s investment in CSH Montreal, the Company provides a guarantee of up to 50% of the outstanding balance of the acquisition and development credit facility (“CSH Montreal Debt”) of CAD 112.0 million ($96.8 million at December 31, 2014 exchange rate). As of December 31, 2014, the outstanding balance of the CSH Montreal Debt was CAD 101.8 million ($88.0 million at December 31, 2014 exchange rate), of which the Company guaranteed CAD 50.9 ($44.0 million at December 31, 2014 exchange rate). The term of the guarantee follows the term of the underlying debt, which matures on January 13, 2016, unless the twelve month extension, which is subject to lender approval, is exercised. The CSH Montreal debt is secured by, among other things, a first mortgage position on the real estate and improvements owned by CSH Montreal. The Company has estimated the fair value of this guarantee to be immaterial.

Except as disclosed above, the Company does not expect that the borrowers will default on the underlying debt arrangements and accordingly the Company does not expect to be required to perform under the guarantees. In the event that the Company is required to perform under one of the guarantees, it believes the borrower’s assets collateralizing the debt would be sufficient to cover the maximum potential amount of future payments under the guarantee.

Contingencies

In the normal course of business, the Company is subject to claims, lawsuits and legal proceedings. In addition to the matters described below, the Company is involved in various routine legal proceedings arising in the ordinary course of business. Although the outcomes of such routine legal proceedings cannot be predicted with certainty, in the opinion of management, the ultimate resolution of such routine matters will not have a material adverse effect on the Company’s financial position or results of operations.

On July 3, 2012, the Company and certain of its subsidiaries were named as defendants in a lawsuit filed with the 250^th Judicial District Court in Travis County in Austin, Texas. The case arose from an accident at The Grove at Denton, located in Denton, Texas, in which a balcony of one of the units broke and three people were seriously injured. The claims in the lawsuit against Campus Crest and certain of its subsidiaries by the plaintiffs were settled in their entirety on July 29, 2014 without any admission of liability on the part of Campus Crest or its subsidiaries. The settlement, which is covered by the Company’s existing insurance coverage, did not have a material adverse effect on the Company’s financial position or results of operations.

On January 21, 2015, the Company and certain of its subsidiaries were named as defendants in a lawsuit filed in the 7^th Division of the Jefferson Circuit Court in Jefferson County in Louisville, Kentucky. The case arose from an individual who fell to his death at a construction site located at 2501 South 4^th Street, Louisville, Jefferson County, Kentucky. Also named as co-defendants in the case are three other companies associated with the construction and/or employment of the deceased individual. The plaintiffs allege, among other things, the Company was negligent and/or allowed a dangerous or hazardous condition to exist on the premises. The plaintiffs’ initial complaint did not specify the amount of damages sought. The Company is presently reviewing the complaint, reviewing applicable law and venue, and preparing its responsive pleadings. Based upon the totality of the circumstances, including the existence of insurance coverage and anticipated indemnity from third-parties, the Company does not believe that the lawsuit, if adversely determined, would have a material adverse effect on the Company’s financial position or results of operation.

The Company is not aware of any environmental liability with respect to the properties that could have a material adverse effect on the Company’s business, assets or results of operations. However, there can be no assurance that such a material environmental liability does not exist. The existence of any such material environmental liability could have an adverse effect on the Company’s financial position or results of operations and cash flows.