NOTE 20. COMMITMENTS AND CONTINGENCIES

MINIMUM FUTURE RENTAL PAYMENTS

The Company leases, as lessee, certain equipment, land, and improvements under operating leases.

Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of one year as of December 31, 2016, are summarized as follows:


Year Ending December 31,	Amounts
2017	$	580,483
2018		441,186
2019		441,944
2020		375,640
2021		307,674
2022 and thereafter (cumulative)		194,831
Total	$	2,341,758

Rental expense under all operating leases amounted to approximately $389,000, $410,000, and $408,000, for the years ended December 31, 2016, 2015, and 2014, respectively.

Effective January 24, 2017, the Company acquired the land and improvements comprising the golf courses, previously leased from the City for approximately $1.5 million (the “Golf Course Land Purchase”). Accordingly, the portion of the minimum future rental payments related to the golf lease as of December 31, 2016 included in the schedule above of approximately $1.7 million, will be not be paid.

MINIMUM FUTURE RENTAL RECEIPTS

Additionally, the Company, as lessor, leases certain land, buildings, and improvements under operating leases.

Minimum future rental receipts under non-cancelable operating leases having remaining terms in excess of one year as of December 31, 2016, are summarized as follows:


Year Ending December 31,	Amounts
2017	$	21,132,772
2018		20,623,899
2019		20,538,957
2020		19,461,644
2021		16,231,649
2022 and thereafter (cumulative)		68,269,361
Total	$	166,258,282

LEGAL PROCEEDINGS

From time to time, the Company may be a party to certain legal proceedings, incidental to the normal course of business. While the outcome of the legal proceedings cannot be predicted with certainty, the Company does not expect that these proceedings will have a material effect upon our financial condition or results of operations.

On November 21, 2011, the Company, Indigo Mallard Creek LLC and Indigo Development LLC, as owners of the property leased to Harris Teeter, Inc. (“Harris Teeter”) in Charlotte, North Carolina, were served with pleadings filed in the General Court of Justice, Superior Court Division for Mecklenburg County, North Carolina, for a highway condemnation action involving this property. The proposed road modifications would impact access to the property. The Company does not believe the road modifications provided a basis for Harris Teeter to terminate the Lease. Regardless, in January 2013, the North Carolina Department of Transportation (“NCDOT”) proposed to redesign the road modifications to keep the all access intersection open for ingress with no change to the planned limitation on egress to the right-in/right-out only. Additionally, NCDOT and the City of Charlotte proposed to build and maintain a new access road/point into the property. Construction has begun and is not expected to be completed before the second quarter of 2017. Harris Teeter has expressed satisfaction with the redesigned project and indicated that it will not attempt to terminate its lease if this project is built as currently redesigned. Because the redesigned project will not be completed until late 2017 to mid-2018, the condemnation case has been placed in administrative closure. As a result, the trial and mediation will not likely be scheduled until requested by the parties, most likely in late 2018.

On February 15, 2017, Wintergreen Advisers, LLC (“Wintergreen”) filed a complaint in the Circuit Court of the Seventh Judicial Circuit in Volusia County, Florida (the “Wintergreen Complaint”) against the Company and each of its directors. The Wintergreen Complaint seeks an order compelling the Company to either include Wintergreen’s four director nominees, all of whom are employees or hired consultants of Wintergreen, in the Company’s proxy statement as nominees to be voted on at the Company’s 2017 Annual Meeting of Shareholders (the “2017 Annual Meeting”) or permit Wintergreen to bring their proposed nominees before the Company’s shareholders at the 2017 Annual Meeting. The Company believes that the Wintergreen Complaint has no legal merit and the Company intends to defend the interests of all CTO shareholders by vigorously resisting the remedies sought in the Wintergreen Complaint. The Wintergreen Complaint does not seek monetary remedies or compensation for damages or similar contingencies. However, defending against the Wintergreen Complaint will likely require cash outlays, for legal and other expenses, as well as, commitment of management resources. As of the date of this report the Company is not able to estimate the amount of such costs.

CONTRACTUAL COMMITMENTS - EXPENDITURES

In connection with the acquisition of the Lowes on April 22, 2014, the Company was credited approximately $651,000 at closing for certain required tenant improvements, some of which were not required to be completed until December 2016. As of December 31, 2016, $100,000 of these tenant improvements had been completed and funded, leaving approximately $551,000 remaining to be funded. The remaining commitment as of December 31, 2016, totaled approximately $381,000, which is equal to the amount of the final reimbursement request the Company received from Lowe’s.

On April 5, 2016, the Company entered into a 15-year lease with 24 Hour Fitness for the anchor space at The Grove property located in Winter Park, Florida. The lease is for approximately 40,000 square feet, or 36%, of the 112,000 square foot multi-tenant retail center. On July 6, 2016, the Company funded approximately $4.0 million into an escrow account for customary tenant improvements for the build out of the space to be occupied by 24 Hour Fitness. 24 Hour Fitness began drawing funds from escrow in September of 2016, and continued doing so in accordance with the lease as construction progressed. As of December 31, 2016, approximately $3.6 million of construction has been funded from the escrow account, leaving a remaining cash commitment of approximately $375,000. The balance was funded during January of 2017, 24 Hour Fitness completed construction, and the grand opening took place on February 4, 2017.

In conjunction with the Company’s sale of approximately 3.4 acres of land to RaceTrac in December 2013, the Company agreed to reimburse RaceTrac for a portion of the costs for road improvements and the other costs associated with bringing multiple ingress/egress points to the entire 23 acre Williamson Crossing site, including the Company’s remaining 19.6 acres. The estimated cost for the improvements equals approximately $1.26 million and the Company’s commitment is to reimburse RaceTrac in an amount equal to the lesser of 77.5% of the actual costs or $976,500. The Company’s commitment to fund the improvement costs benefiting the remaining acres of Company land can be paid over five years from sales of the remaining land or at the end of the fifth year. In 2013 the Company deposited $283,500 of cash in escrow related to the improvements, which is classified as restricted cash in the consolidated balance sheets. The total amount in escrow as of December 31, 2016 was approximately $287,000, including accrued interest. Accordingly, as of December 31, 2016, the remaining maximum commitment is approximately $690,000.

In conjunction with the Company’s sale of approximately 18.1 acres of land to an affiliate of Sam’s Club (“Sam’s”) in December 2015, the Company agreed to reimburse Sam’s for a portion of their construction costs applicable to adjacent outparcels retained by the Company. As a result, in December 2015, the Company deposited $125,000 of cash in escrow related to construction work which remains classified as restricted cash in the consolidated balance sheets as of December 31, 2016. The Company’s maximum commitment related to the construction work benefitting the outparcels adjacent to Sam’s is $125,000, to be paid from escrow upon completion.

In conjunction with the Company’s sale of approximately 15.0 acres of land to an affiliate of Integra Land Company (“Integra”) in December 2015, the Company agreed to reimburse Integra approximately $276,000 for a portion of the costs for road access and related utility improvements that will benefit the land parcel sold to Integra as well as the surrounding acreage still owned by the Company. The Company also agreed to reimburse Integra approximately $94,000 for site relocation costs. Accordingly, in December 2015, the Company deposited a combined $370,000 of cash in escrow related to these reimbursements which are classified as restricted cash in the consolidated balance sheets. During the year ended December 31, 2016, approximately $350,000 was disbursed from the escrow account. Accordingly, as of December 31, 2016, the Company’s maximum remaining commitment related to these reimbursements is approximately $20,000 to be paid from escrow as costs are incurred.

In conjunction with the Company’s Golf Course Land Purchase in January 2017, the Company agreed to renovate the greens on the Jones course within one year of the agreement. The Company expects to incur the cost of this renovation, which is estimated between approximately $200,000 and $300,000, prior to the fourth quarter of 2017.

CONTRACTUAL COMMITMENTS – LAND PIPELINE

Following the Minto Sale (hereinafter defined), as of February 10, 2017, the Company’s land holdings totaled approximately 8,200 acres and the pipeline of potential land sales transactions included the following ten definitive purchase and sale agreements with ten different buyers, representing approximately 27% of our land holdings:


			Contract
		No. of	Amount		Price		Estimated
	Contract (or Buyer) / Parcel	Acres	($000's)		per Acre		Timing
1	Commercial/Retail (1)	35	$	14,000	$	400,000	'17 - '19
2	Commercial/Retail	4		1,175		294,000	'17 - '18
3	Commercial/Retail	6		1,556		259,000	'17 - '18
4	Mixed-Use Retail	22		5,574		253,000	'17 - '18
5	Mixed-Use Retail (NADG)	82		20,187		246,000	'17 - '18
6	Residential (SF)	7		1,140		163,000	'18 - '19
7	Commercial (1)	28		3,215		115,000	'17 - '18
8	AR Residential (Minto)	1,686		31,360		19,000	'18 - '19
9	SF Residential	194		3,324		17,000	'18 - '19
10	SF Residential (ICI)	146		1,400		10,000	'18 - '19
	Total	2,210	$	82,931	$	38,000

⁽¹⁾

Contract amount and price per acre may be reduced by potential costs incurred for wetlands mitigation, if any.

As noted above, all of these agreements contemplate closing dates ranging from the first quarter of 2017 through fiscal year 2019, and the Company expects some of the transactions to close in 2017, although the buyers are not contractually obligated to close until after 2017. Each of the transactions are in varying stages of due diligence by the various buyers including, in some instances, having made submissions to the planning and development departments of the City of Daytona Beach, and other permitting activities with other applicable governmental authorities. In addition to other customary closing conditions, the majority of these transactions are conditioned upon the receipt of approvals or permits from those various governmental authorities, as well as other matters that are beyond our control. If such approvals are not obtained, the prospective buyers may have the ability to terminate their respective agreements prior to closing. As a result, there can be no assurances regarding the likelihood or timing of any one of these potential land transactions being completed or the final terms thereof, including the sales price.

OTHER MATTERS

In connection with a certain land sale contract to which the Company is a party, the purchaser’s pursuit of customary development entitlements gave rise to an inquiry by federal regulatory agencies regarding prior agricultural activities by the Company on such land. During the second quarter of 2015, we received a written information request regarding such activities. We submitted a written response to the information request along with supporting documentation. We believe the issues raised by, and the land which was the subject of, this inquiry are similar to or the same as those which were addressed and resolved by the settlement agreement executed in December 2012 between the Company and the St. Johns River Water Management District (the “District”) and the permit which the District subsequently issued to the Company. During the fourth quarter of 2015, based on discussions with the agency, a penalty related to this matter was deemed probable, and accordingly the estimated penalty of $187,500 was accrued as of December 31, 2015, for which payment was made during the year ended December 31, 2016. Also during the fourth quarter of 2015, the agency advised the Company that the resolution to the inquiry would likely require the Company to incur costs associated with wetlands restoration relating to approximately 148.4 acres of the Company’s land. At December 31, 2015, the Company’s third-party environmental engineers estimated the cost for such restoration activities to range from approximately $1.7 million to approximately $1.9 million. Accordingly, as of December 31, 2015, the Company accrued an obligation of approximately $1.7 million, representing the low end of the estimated range of possible restoration costs and included such estimated costs on the consolidated balance sheets as an increase in the basis of our land and development costs associated with those and benefitting surrounding acres. As of June 30, 2016 the final proposal from the Company’s third-party environmental engineer was received for a total cost of approximately $2.0 million. Accordingly, an increase in the accrual of approximately $300,000 was made during the second quarter of 2016. The Company funded approximately $935,000 of the total $2.0 million of estimated costs during the second quarter of 2016. The Company believes there is at least a reasonable possibility that the estimated remaining liability of approximately $1.1 million could change within one year of the date of the consolidated financial statements, which in turn could have a material impact on the Company’s consolidated balance sheets and future cash flows. The Company evaluates its estimates on an ongoing basis; however, actual results may differ from those estimates. Additionally, resolution of the regulatory matter required the Company to apply for an additional permit pertaining to an additional approximately 54.7 acres, which permit may require mitigation activities which the Company anticipates could be satisfied through the utilization of existing mitigation credits owned by the Company or the acquisition of mitigation credits. The Company anticipates that resolution of this matter will allow the Company to obtain certain permits from the applicable federal or state regulatory agencies needed in connection with the closing of the land sale contract that gave rise to this matter. The number of mitigation credits that may be required is not currently estimable and as the utilization or purchase of such credits would be incorporated into the basis of the land under contract, no amounts related to mitigation credits have been accrued as of December 31, 2016. In addition, in connection with other land sale contracts to which the Company is or may become a party, the pursuit of customary development entitlements by the potential purchasers may require the Company to utilize or acquire mitigation credits for the purpose of obtaining certain permits from the applicable federal or state regulatory agencies. Any costs incurred in connection with utilizing or acquiring such credits would be incorporated into the basis of the land under contract and, accordingly, no amounts related to such potential future costs have been accrued as of December 31, 2016.

During 2015 and 2016, the Company received communications from Wintergreen Advisers, LLC, an institutional investment advisory firm (“Wintergreen”) that manages the Wintergreen Fund, a public mutual fund, some of which have been filed publicly. In investigating the allegations contained in certain communications from Wintergreen and in pursuing the strategic alternatives process advocated by Wintergreen, the Company has incurred costs of approximately $1.2 million and approximately $229,000, respectively, to date, through December 31, 2016, including investigative work for legal representation, accounting services, additional director and committee meeting fees, or other third party costs. To date, none of the allegations have been found to have any basis or merit; however, such costs could continue to be incurred and, while not reasonably estimable, may represent significant costs for the Company which would have an adverse impact on the Company’s results of operations and cash flows.