18.Commitments and Contingencies

Non-Cancellable Operating Leases

In September 2014, the Company entered into a non-cancellable lease, which was subsequently amended in July 2015 and October 2016, whereby the Company terminated the lease for its prior corporate headquarters in Lehi, Utah and moved to another building in the same general location. The new headquarters lease is classified and accounted for as a non-cancellable operating lease. The lease term is 12 years, with the option to extend for two additional periods of five years. The base rent for this building commenced at approximately $0.3 million per month and will increase over the term of the lease, as amended, at a rate of 2.5% annually. In October 2016, the Company amended the new headquarters lease to terminate the construction of the studio building. Construction on the studio building had not commenced prior to the amendment date.

In July 2015, the Company entered into a non-cancellable lease for a second office building on the corporate headquarters campus. Subsequently in October 2016, the lease was amended resulting in a new anticipated lease commencement date of January 1, 2020. The second office building will provide approximately 150,000 square feet of office space. The lease term is 12 years, with the option to extend for two additional periods of five years. The monthly rent payments will commence at approximately $0.4 million and increase at a rate of 2.5% annually. As a result, the Company expects to make total lease payments of $57.7 million over the initial term of the lease.

The Company has entered into lease agreements for warehouses and related equipment located in states in which the Company conducts operations. The warehouse lease agreements range from a term of one to six years, with the majority having a term of three years. The equipment lease agreements range from one to three years, and include basic renewal options for an additional set period, continued renting by the month, or return of the unit.

For all non-cancellable lease arrangements, there are no bargain renewal options, penalties for failure to renew, or any guarantee by the Company of the lessor’s debt or a loan from the Company to the lessor related to the leased property. Aggregate lease expense for these non-cancellable operating lease arrangements was $17.4 million, $11.0 million and $4.3 million for the years ended December 31, 2016, 2015 and 2014. For operating leases having remaining lease terms in excess of one year, the total minimum rental payments to be received under noncancelable subleases was $1.3 million as of December 31, 2016. Rental payments received under noncancelable subleases are recorded as a reduction to operating lease expense.

Future minimum lease payments under non-cancellable operating leases as of December 31, 2016 were as follows (in thousands):

Years Ending December 31,
2017	$	12,171
2018		8,683
2019		5,415
2020		7,106
2021		8,973
Thereafter		82,193
Total minimum lease payments	$	124,541

Build-to-Suit Lease Arrangements

As discussed in “—Non-Cancellable Operating Leases,” in September 2014, the Company entered into a non-cancellable lease for its new headquarters. In 2015, construction began on the new headquarters. Because of the Company’s involvement in certain aspects of construction per the terms of the lease, the Company was deemed the owner of the building for accounting purposes. Accordingly, the Company recorded a build-to-suit lease asset and corresponding build-to-suit lease liabilities during the construction period.

In May 2016, construction on the new headquarters was completed and the Company commenced occupancy. The building qualified for sale-leaseback treatment as the Company determined the lease to be a normal leaseback, payment terms indicated the landlord has continuing investment in the property and the payment terms transferred the risks and rewards of ownership to the landlord. As such, the Company removed the build-to-suit lease asset and liabilities in the second quarter of 2016. The new headquarters’ lease is classified and accounted for as a non-cancellable operating lease.

Letters of Credit

As of December 31, 2016, the Company had established letters of credit under the Working Capital Facility for up to $13.5 million related to insurance contracts and under the Term Loan Facility for up to $13.0 million related to the debt service reserve for the Term Loan Facility. See Note 11—Debt Obligations.

During the year ended December 31, 2016, the Company fulfilled its obligations under a forward contract to sell SRECs entered into in November 2013. As a result, the related $1.8 million stand-by letter of credit that was outstanding at December 31, 2015 was cancelled, and the corresponding time deposit was released during the year ended December 31, 2016.

Indemnification Obligations

From time to time, the Company enters into contracts that contingently require it to indemnify parties against claims. These contracts primarily relate to provisions in the Company’s services agreements with related parties that may require the Company to indemnify the related parties against services rendered; and certain agreements with the Company’s officers and directors under which the Company may be required to indemnify such persons for liabilities. In addition, under the terms of the agreements related to the Company’s investment funds and other material contracts, the Company may also be required to indemnify fund investors and other third parties for liabilities. Distributions paid to reimburse fund investors totaled $2.7 million, $5.0 million and zero for the years ended December 31, 2016, 2015, and 2014. As of December 31, 2016, the Company accrued an estimated $8.3 million in distributions to reimburse fund investors a portion of their capital contributions primarily due to a delay in solar energy systems being interconnected to the power grid and other factors.

Legal Proceedings

In September 2014, two former installation technicians of the Company, on behalf of themselves and a purported class, filed a complaint for damages, injunctive relief and restitution in the Superior Court of the State of California in and for the County of San Diego against the Company and unnamed John Doe defendants. The complaint alleges certain violations of the California Labor Code and the California Business and Professions Code based on, among other things, alleged improper classification of installer technicians, installer helpers, electrician technicians and electrician helpers, failure to pay minimum and overtime wages, failure to provide accurate itemized wage statements, and failure to provide wages on termination. In December 2014, the original plaintiffs and three additional plaintiffs filed an amended complaint with essentially the same allegations. On November 5, 2015, the parties agreed to preliminary terms of a settlement of all claims related to allegations in the complaint in return for the Company’s payment of $1.7 million to be paid out to the purported class members, which was accrued at that time. The Court gave final approval to the settlement on September 30, 2016. On October 7, 2016, the Company made payment of the $1.7 million gross settlement fund to the settlement claim administrator.

In November and December 2014, two putative class action lawsuits were filed in the U.S. District Court for the Southern District of New York against the Company, its directors, certain of its officers and the underwriters of the Company’s initial public offering of common stock alleging violation of securities laws and seeking unspecified damages. In January 2015, the Court ordered these cases to be consolidated into the earlier filed case, Hyatt v. Vivint Solar, Inc. et al., 14-cv-9283 (KBF). The plaintiffs filed a consolidated amended complaint in February 2015. On May 6, 2015, the Company filed a motion to dismiss the complaint and on December 10, 2015, the Court issued an Opinion and Order dismissing the complaint with prejudice. On January 5, 2016, the plaintiffs filed a Notice of Appeal to the Second Circuit Court of Appeals. On August 25, 2016, the Court of Appeals heard oral arguments on the appeal. The Company is unable to estimate a range of loss, if any, that could result were there to be an adverse final decision. If an unfavorable outcome were to occur in this case, it is possible that the impact could be material to the Company’s results of operations in the period(s) in which any such outcome becomes probable and estimable.

On September 9, 2015, two of the Company’s customers, on behalf of themselves and a purported class, named the Company in a putative class action, Case No. BCV-15-100925(Cal. Super. Ct., Kern County), alleging violation of California Business and Professions Code Section 17200 and requesting relief pursuant to Section 1689 of the California Civil Code. The complaint seeks: (1) rescission of their PPAs along with restitution to the plaintiffs individually and (2) declaratory and injunctive relief. On October 16, 2015, the Company moved to compel arbitration of the plaintiffs’ claims pursuant to the provisions set forth in the PPAs, which the Court granted and dismissed the class claims without prejudice. Plaintiffs have appealed the Court’s order. It is not possible to estimate the amount or range of potential loss, if any, at this time.

On March 8, 2016, the Company filed suit in the Court of Chancery State of Delaware against SunEdison and SEV Merger Sub Inc. alleging that SunEdison willfully breached its obligations under the Merger Agreement pursuant to which the Company was to be acquired and breached its implied covenant of good faith and fair dealing. The Company is seeking declaratory judgment, award damages, costs and reasonable attorney’s fees and such further relief that the court finds equitable, appropriate and just. On April 21, 2016, SunEdison filed for Chapter 11 bankruptcy, thereby creating a temporary stay on the prosecution of the Company’s litigation in the Delaware court. On July 7, 2016, the Company filed a motion with the bankruptcy court seeking to lift the stay and allow the Company to litigate its claim against SunEdison. On September 13, 2016, the bankruptcy court denied the Company’s motion to lift the stay, effectively requiring that the Company’s claim be litigated in the bankruptcy proceeding. On September 22, 2016, the Company submitted a proof of claim in the bankruptcy case for an unsecured claim in the amount of $1.0 billion. The Company is participating in the bankruptcy case so as to maximize the recovery from the claims against SunEdison.

In March 2016, a civil complaint was filed against the Company alleging negligence and related claims arising from damage to a customer’s residence. In June 2016, the Company reached agreement between the Company, the plaintiffs and the Company’s liability insurance provider to participate in an arbitration proceeding to determine the extent of the damages. The arbitration took place in September 2016. Following the arbitration, the arbitrator awarded the plaintiffs damages in the amount of $2.8 million. In December 2016, the Company’s liability insurance provider paid the damages award in full.

In March 2017, the Company received notice that the New Mexico Attorney General’s office intends to file an action against the Company and its officers alleging violation of state consumer protection statutes. The Company disputes the allegations and intends to defend itself in the action. The Company is unable to estimate a range of loss, if any, that could result were there to be an adverse final decision. If an unfavorable outcome were to occur in this case, it is possible that the impact could be material to the Company’s results of operations in the period(s) in which any such outcome becomes probable and estimable.

In addition to the matters discussed above, in the normal course of business, the Company has from time to time been named as a party to various legal claims, actions and complaints. While the outcome of these matters cannot be predicted with certainty, the Company does not currently believe that the outcome of any of these claims will have a material adverse effect, individually or in the aggregate, on its consolidated financial position, results of operations or cash flows.

The Company accrues for losses that are probable and can be reasonably estimated. The Company evaluates the adequacy of its legal reserves based on its assessment of many factors, including interpretations of the law and assumptions about the future outcome of each case based on available information.