Commitments and Contingencies

Leases

The Company leases office and warehouse spaces under non-cancelable leases. These leases expire at various dates through 2034 and include discounted rental periods and fixed escalation clauses, which are amortized straight-line over the terms of the lease. Future minimum rental commitments under non-cancelable leases with initial or remaining terms in excess of one year at December 31, 2018 were as follows (in thousands):



	Amount
2019	$	106,456
2020	123,757
2021	130,017
2022	126,230
2023	122,698
Thereafter	594,464
Total	$	1,203,622

Rent expense under operating leases was $63.8 million, $45.2 million, and $33.6 million in the years ended December 31, 2018, 2017 and 2016, respectively. The Company has issued letters of credit for approximately $26.8 million and $15.3 million as security for these lease agreements as of December 31, 2018 and 2017, respectively.

Future lease payments have not been reduced by minimum sublease rentals of $3.4 million due to the Company in the future under non-cancelable subleases through 2020.

The Company establishes assets and liabilities for the estimated construction costs incurred under lease arrangements where the Company is considered the owner for accounting purposes only, or build-to-suit leases, to the extent the Company is involved in the construction of structural improvements or takes construction risk prior to commencement of a lease. Upon occupancy of facilities under build-to-suit leases, the Company assesses whether these arrangements qualify for sales recognition under the sale-leaseback accounting guidance. If the Company continues to be the deemed owner, the facilities are accounted for as financing leases.

In the year ended December 31, 2018, the construction of three warehouse lease arrangements were completed. In the first warehouse lease arrangement, the Company concluded it had a letter of credit of $2.5 million and as a result the Company did not meet the sale-leaseback criteria for derecognition of the building assets and liabilities. In both the second and third warehouse lease arrangements the Company provided non-recourse financing to the lessor and as a result the Company did not meet the sale-leaseback criteria for derecognition of the building assets and liabilities.

In the year ended December 31, 2017, the construction of two warehouse lease arrangements were completed. In both lease warehouse lease arrangements, the Company concluded it had letters of credit of $0.8 million and $1.0 million and as a result the Company did not meet the sale-leaseback criteria for derecognition of the building assets and liabilities.

Accordingly, these leases were accounted for as financing obligations and $101.0 million and $53.8 million were recorded in "Lease financing obligations, net of current portion" and "Property and equipment, net," respectively, in the Company’s consolidated balance sheet as of December 31, 2018 and December 31, 2017 respectively. The monthly rent payments made to the lessor under the lease agreement are recorded in the Company’s financial statements as land lease expense and principal and interest on the financing obligation. Interest expense on the lease financing obligation reflects the portion of the Company's monthly lease payments that is allocated to interest expense. For the years ended December 31, 2018, 2017, and 2016 land lease expense was $2.7 million $0.9 million and $0.1 million respectively, and interest expense on lease financing obligations was $12.0 million, $6.9 million, and $1.4 million respectively. As of December 31, 2018, future minimum commitments related to the financing obligations were $75.6 million and $22.1 million for principal and interest, respectively, through December 31, 2023.

Collection of Sales or Other Similar Taxes

The Company has historically collected and remitted sales tax based on the locations of its physical operations. On June 21, 2018, the U.S. Supreme Court rendered a 5-4 majority decision in South Dakota v. Wayfair Inc., 17-494. Among other things, the Court held that a state may require an out-of-state seller with no physical presence in the state to collect and remit sales taxes on goods the seller ships to consumers in the state, overturning existing court precedent. Several states and other taxing jurisdictions have presented, or indicated that they may present, the Company with sales tax assessments. The aggregate assessments received as of December 31, 2018 are not material to the Company's business and the Company does not expect the Court's decision to have a significant impact on its business.

Legal Matters

On June 21, 2018, the U.S. Supreme Court rendered a 5-4 majority decision in South Dakota v. Wayfair Inc., 17-494. Among other things, the Court held that a state may require an out-of-state seller with no physical presence in the state to collect and remit sales taxes on goods the seller ships to consumers in the state, overturning existing court precedent. See Collection of Sales or Other Similar Taxes above.

On January 10, 2019 and January 16, 2019, putative securities class action complaints were filed against the Company and three of its officers in the U.S. District Court for the District of Massachusetts. The two complaints allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, relating to certain prior disclosures of the Company. Each plaintiff seeks to represent a class of shareholders who purchased or acquired stock of the Company between August 2, 2018 and October 31, 2018 and seeks damages and other relief based on allegations that the defendants' conduct affected the value of such stock. The Company intends to defend these lawsuits vigorously. At this time, based on available information regarding this litigation, the Company is unable to reasonably assess the ultimate outcome of these cases or determine an estimate, or a range of estimates, of potential losses.

From time to time the Company is involved in claims that arise during the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, the Company does not currently believe that the outcome of any of these other legal matters will have a material adverse effect on the Company's results of operation or financial condition. Regardless of the outcome, litigation can be costly and time consuming, as it can divert management's attention from important business matters and initiatives, negatively impacting the Company's overall operations. In addition, the Company may also find itself at greater risk to outside party claims as it increases its operations in jurisdictions where the laws with respect to the potential liability of online retailers are uncertain, unfavorable, or unclear.