The Company pays for the use of its office, laboratory and manufacturing facility in San Jose, California as part of the RMS-ICL Service Agreement. In April 2022, RMS assigned the RMS-ICL Service Agreement to Rani LLC. The RMS-ICL Service Agreement has a twelve-month term and will automatically renew for successive twelve-month periods unless Rani LLC or ICL terminate occupancy under the RMS-ICL Service Agreement upon six months’ notice. As of June 30, 2022, the Company determined it to be reasonably certain that it would exercise its renewal option for a successive twelve-month period and this has been considered in the determination of the right-of-use assets and lease liabilities associated with the RMS-ICL Service Agreement. At June 30, 2022, the RMS-ICL Service Agreement had a remaining term of 1.5 years.

Under the Rani LLC-ICL Service Agreement amended in March 2022, Rani LLC has a right to occupy certain facilities leased by ICL in Milpitas, California and San Antonio, Texas for general office, research and development, and light manufacturing. The Rani LLC-ICL Service Agreement has a twelve-month term and will automatically renew for a successive twelve-month periods unless terminated; except that the Occupancy Services in Milpitas, California have a term until February 2023, with the potential for two annual renewals, subject to approval by the landlord upon a nine months’ notice of renewal prior to the end of the lease term, and the Occupancy Services in San Antonio, Texas continue until either party gives six months’ notice of termination. As of June 30, 2022, the renewal option for the facility in Milpitas, California was not deemed reasonably certain to be exercised and the Occupancy Services were considered short term.

The Company's leases are accounted for as operating leases and require certain fixed payments of real estate taxes and insurance in addition to future minimum lease payments, and certain variable payments of common area maintenance costs and building utilities. Variable lease payments are expensed in the period in which the obligation for those payments is incurred. These variable lease costs are payments that vary in amount beyond the commencement date, for reasons other than passage of time. Total operating lease expense incurred with ICL was $0.7 million and $0.4 million for the six months ended June 30, 2022 and 2021, respectively. Short term lease expense are included in the total operating lease expense and not immaterial for the periods presented. Variable lease payments are excluded in the total operating lease expense and immaterial for the periods presented.

The Company used its IBR as the discount rate when measuring operating lease liabilities. The discount rate associated with the RMS-ICL Service Agreement is 5.0%.

Supplemental information on the Company’s condensed consolidated balance sheet and statements of cash flow as of June 30, 2022 related to leases was as follows (in thousands):


	June 30,
	2022
Balance sheet
Operating lease right-of-use assets	$	999

Operating lease liability, current portion	$	658
Operating lease liability, net current portion		341
Total operating lease liability	$	999


	June 30,
	2022
Cash flows
Cash paid for amounts included in lease liabilities:
Operating cash flows used for operating leases	$	345

As of June 30, 2022, minimum annual rental payments under the Company’s operating lease agreement is as follows (in thousands):


Year ending December 31,
2022 (remaining six months)	$	345
2023		690
Total undiscounted future minimum lease payments	$	1,035
Less: Imputed interest		(36	)
Total operating lease liability	$	999
Less: Operating lease liability, current portion		658
Operating lease liability, net current portion	$	341

Operating lease in the table above includes future minimum lease payments for the RMS-ICL Service Agreement. Future minimum lease payments of the Rani LLC-ICL Service Agreement for fiscal years 2022 (remaining six months) and 2023 totaled $0.3 million and $0.1 million, respectively.