The Company leases an office space in Houston, Texas under an operating lease that expires in September 2021. The Company also sub-leases from ElevateBio a portion of its office space in Cambridge, Massachusetts on a month-to-month basis. Total expense recognized under short-term leases was $0.1 million (including approximately $17 thousand for non-lease costs such as utilities and cleaning), and $0.1 million (including approximately $15 thousand for non-lease costs such as utilities and cleaning) during the three months ended March 31, 2021 and 2020, respectively.

Operating lease liabilities and their corresponding right-of-use (“ROU”) assets are recorded based on the present value of future lease payments over the expected remaining lease term. The Company has elected to account for the lease and non-lease components together for existing classes of underlying assets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. The Company uses an incremental borrowing rate based on information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate represents the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. The Company estimates this rate based on prevailing market conditions, comparable company and credit analysis, the impact of collateralization, and the term of each of the Company’s lease agreements.

In March 2019, the Company entered into an interim services agreement which ultimately led to a Development and Manufacturing Services Agreement (“DMS Agreement”) with a third-party supplier in July 2019. The DMS Agreement specifies a dedicated manufacturing suite for the manufacture of AlloVir’s products at the facility. The DMS Agreement will expire upon the later of: 1) two years from the Effective Date, or July 2021, and 2) the completion of services under all Statements of Work (SOWs). The term may be extended by agreement of the parties for additional two-year periods upon written notice to the supplier at least 30 days prior to expiration of the then-current term. The DMS Agreement (or any individual SOW) may be terminated earlier by AlloVir at any time by providing 190 days’ notice. The Company estimates that the exercise of one of the two-year renewal options is reasonably certain to occur, and that early termination is not reasonably certain to occur, providing for a total estimated lease term of 4.25 years expiring in July 2023. In March 2019, at the inception of this lease, the Company recorded a ROU asset and lease liability of $6.9 million. In September 2019, the Company executed a SOW for another dedicated manufacturing suite under the DMS Agreement with substantially the same terms as the original SOW. The SOW calls for a fixed monthly payment through July 2023, with additional two-year renewal options. The use of this manufacturing suite qualifies as a lease under ASC 842, as it includes an identified asset for exclusive use by the Company at its direction.

In May 2020, the Company entered into a new Development and Manufacturing Services Agreement (“2020 DMS Agreement”) with ElevateBio BaseCamp, Inc. and signed a statement of work (SOW) in November 2020. The DMS Agreement and related SOW contained an embedded lease for a dedicated manufacturing suite for the manufacture of AlloVir’s products at the facility because the Company directs how and for what purpose the suite is used for and obtains substantially all of the economic benefit of the suite. In exchange for this dedicated manufacturing suite, AlloVir will pay the supplier a monthly fixed suite utilization fee, and other related fixed costs, totaling $3.2 million over the two-year lease term (one year lease with a one-year renewal option), that covers costs associated with reserving capacity for AlloVir, as well as cleaning services, utilities, handling and maintenance of the manufacturing suite. The Company estimates that the exercise of the one-year renewal option is reasonably certain to occur, and the Company is reasonably certain that it will not exercise its early termination right, providing for a total estimated lease term of two years expiring in January 2023. As part of the arrangement, there were also variable costs for materials, non-fixed batch payments, storage, knowledge and tech transfer and other common area maintenance fees that were not included in the measurement of the lease. The lease of the facility was determined to be classified as an operating lease and commenced in February 2021, the point at which the new facility area was substantially complete and available for use by the Company. Accordingly, during the three months ended March 31, 2021, the Company recorded a ROU asset of $3.1 million and a lease liability of $2.5 million. The Company prepaid $0.6 million of the suite utilization fee, which was reclassified from prepaid expense to the ROU asset upon lease commencement.

Maturities of operating lease liabilities at March 31, 2021 are as follows (in thousands):

2021 (remaining 9 months)	$	4,020
2022		4,560
2023		2,175
Total lease payments		10,755
Less: interest (3.40% - 5.75%)		(558	)
Total lease liability	$	10,197
Lease liability – current	$	4,785
Lease liability – long-term	$	5,412

Total lease costs were $1.3 million and $1.0 million for the three months ended March 31, 2021 and 2020, respectively. Cash paid for operating leases was $1.1 million and $1.2 million for the three months ended March 31, 2021 and 2020, respectively. The Company’s total variable non-lease costs, such as materials, non-fixed batch payments, storage, knowledge and tech transfer and other common area maintenance fees, related to the operating leases was $0.9 million and $0.8 million for the three months ended March 31, 2021 and 2020, respectively. The weighted average remaining lease term is 2.22 years at March 31, 2021. The weighted average discount rate is 4.76% at March 31, 2021.