13. Commitments and Contingencies

Commitments

The Company leases offices and equipment under noncancelable operating leases, subject to certain provisions for renewal options and escalation clauses. Future minimum payments (including those allocated to an affiliate) under these leases and commitments, net of payments under sublease agreements, are as follows (in thousands):

	Rent payments		Sublease receipts			Total cash outflows
Year ending December 31:
2014	$	10,801	$	(886	)	$	9,915
2015		10,901		(654	)		10,247
2016		10,048		(616	)		9,432
2017		9,244		(510	)		8,734
2018		8,564		(490	)		8,074
Thereafter		84,662		(122	)		84,540
	$	134,220	$	(3,278	)	$	130,942

Minimum rent payments under noncancelable operating leases are recognized on a straight-line basis over the terms of the leases. Rent expense, excluding amounts related to loss on sublease, was $12,686,000, $12,268,000 and $12,560,000 for the years ended December 31, 2013, 2012 and 2011, respectively, net of amounts recorded under sublease agreements of $674,000, $773,000 and $1,041,000 for the years ended December 31, 2013, 2012 and 2011, respectively.

In April 2010, the Company entered into an eighteen year lease for its corporate headquarters office building (the “Master Lease”). The Company may, at its option, extend the Master Lease for two renewal periods of 10 years. Under the terms of the Master Lease, the Company pays an annual base rent, which escalates 3% each year, including the first optional renewal period. The first year of the second optional renewal period is at a fair market rental value, and the rent escalates 3% each year until expiration. The Company pays for operating expenses in connection with the ownership, maintenance, operation, upkeep and repair of the leased space. The Company may assign or sublet an interest in the Master Lease only with the approval of the landlord.

Upon entering into the Master Lease, the Company became the primary lessee for all facilities located on the headquarter property and issued subleases to two retail tenants already established on the property. The subleases range from 4,000 square feet to 10,500 square feet, have initial lease terms ranging from 5 to 10 years and renewal options ranging from two 5-year renewal options to nine 5-year renewal options. Anticipated revenue from these subleases exceeds the expected costs that will be incurred by the Company.

During March 2011, the Company entered into a sublease agreement with an unrelated third party to lease up to 20,000 square feet of the office space under its Master Lease. The estimated costs the Company expected to incur related to the subleased space exceeded the anticipated revenues the Company expected to receive under the sublease agreement. As such, the Company recorded a liability with the related loss on the sublease of approximately $1,932,000 to “Selling, operating and administrative expenses” in the accompanying Consolidated Statements of Income and Comprehensive Income during the year ended December 31, 2011. The aforementioned loss and associated liability was attributable to the Company’s Real Estate Franchise Services reportable segment. The liability was determined using a risk-free rate to discount the estimated future net cash flows, consisting of the minimum lease payments to the lessor under the Master Lease, estimated executory costs related to the subleased space and anticipated payments the Company expected to receive under the sublease agreement. In November 2012, the sublease was terminated prior to its expiration date. As a result, the Company commenced efforts to market the office space for sublease with a new tenant. On November 15, 2013, a sublease agreement was entered into with a new tenant with a sublease term of five years to lease up to 20,000 square feet of office space under its Master Lease. As such, the Company recorded an adjustment to the existing liability and recorded a loss related to the subleased office space of $1,179,000 during the year ended December 31, 2013. The aforementioned loss and associated liability was attributable to the Company’s Real Estate Franchise Services reportable segment. As of December 31, 2013 and 2012, the short-term portion of the liability was approximately $453,000 and $351,000, respectively, and is included in “Accrued liabilities” in the accompanying Consolidated Balance Sheets. As of December 31, 2013 and 2012, the long-term portion of the liability was approximately $1,494,000 and $972,000, respectively, and is included in “Other liabilities” in the accompanying Consolidated Balance Sheets.

During 2008, the Company closed several real estate brokerage offices in the Pacific Northwest and Washington, DC areas of the U.S. Subsequent to 2008, the Company closed four additional real estate brokerage offices in the Pacific Northwest and Washington, DC areas. In connection with these office closures, the Company abandoned office leases with remaining lease terms of 11 months to eight years. The Company recorded a liability, initially measured at its estimated fair value, for costs that will continue to be incurred under these contracts for the remaining lease terms with the related charge recorded to “Selling, operating and administrative expenses” in the accompanying Consolidated Statements of Income and Comprehensive Income. Further, during 2010, the Company agreed with the respective landlords to terminate four leases, which were previously abandoned and to reoccupy a previously abandoned office space after the expiration of an active lease. The liability recorded related to these offices was reversed with the related recovery recorded to “Selling, operating and administrative expenses” in the accompanying consolidated financial statements. At December 31, 2013 and 2012, total future cash payments were estimated to be $631,000 and $1,061,000, respectively. This liability will be increased by accreting charges over the terms of the leases via charges to rent expense, based on discount rates ranging from 2.75% to 18.03%, and will be reduced by the actual lease payments made. The following table presents a rollforward of the estimated fair value liability established for these costs, which are attributable to the Company’s Brokerage and Other operating segment, from January 1, 2012 to December 31, 2013 (in thousands):

Accruals at January 1, 2012	$	1,175
Additional abandoned leases		-
Extinguishments		(301	)
Accretion and adjustments		268
Payments		(722	)
Accruals at December 31, 2012		420
Additional abandoned leases		99
Extinguishments		-
Accretion and adjustments		197
Payments		(505	)
Accruals at December 31, 2013	$	211

Litigation

The Company is subject to litigation claims arising in the ordinary course of business. The Company believes that it has adequately accrued for legal matters as appropriate. The Company records litigation accruals for legal matters which are both probable and estimable. For legal proceedings for which there is a reasonable possibility of loss (meaning those losses for which the likelihood is more than remote but less than probable), the Company has determined that it does not have material exposure, or it is unable to develop a range of reasonably possible losses.

Other Contingencies

The Company maintains a self-insurance program for health benefits. As of December 31, 2013 and 2012, the Company recorded a liability of $195,000 and $360,000, respectively, related to this program.