In July 2017, the Company entered into an agreement to lease approximately 41,346 square feet of laboratory and office space at 301 Binney Street in Cambridge, Massachusetts. Annual rent is approximately $3.1 million. The ten-year lease commenced in January 2018 and contains provisions for a free-rent period, annual rent increases and an allowance for tenant improvements. The Company is responsible for real estate taxes, maintenance, and other operating expenses applicable to the leased premises. The Company has paid for tenant improvements of approximately $2.9 million. Additionally, the Company has capitalized approximately $6.6 million of landlord-funded tenant improvements. The Company was deemed to be the accounting owner of the tenant improvements primarily because it was responsible for project cost overruns, and as such, the amounts were recorded as a leasehold improvement. The landlord-funded tenant improvement allowance is being amortized as a reduction to lease expense ratably over the lease term. In conjunction with the lease, the Company established a letter of credit of approximately $1.0 million secured by cash balances included in restricted cash. Variable payments based on our portion of the operating expenses, including real estate taxes and insurance, are recorded as a period expense when incurred. The Company has an option to extend the term by five years and an option to terminate the agreement if a similar agreement is executed with the landlord or an affiliate of the landlord. Neither option is reasonably certain of exercise and both are excluded from the lease liability calculation.

On December 7, 2018, Synlogic Operating Company, Inc., a wholly-owned subsidiary of Synlogic, Inc., entered into a Statement of Work (the “SOW”) with Azzur Group, LLC (“Azzur”) pursuant to a Master Contract Services Agreement (the “Master Services Agreement”), dated September 8, 2018, between the Company and Azzur.

Pursuant to the SOW, Azzur has agreed to provide the Company with access to, and the use of, an approximately 700 square foot cleanroom space to be constructed in Waltham, Massachusetts (the “Azzur Suite”), for a period of 44 months, from May 1, 2019 to December 31, 2022 (the “Term”). Azzur has also agreed to provide the Company with storage space and personnel support at the Azzur Suite. The total estimated project cost during the Term for access to, and use of, the cleanroom and storage space, and the personnel support and other services, is up to $4.8 million.

The Company may terminate the SOW on four months’ prior written notice at any time during the Term. In addition, either party may terminate the Master Services Agreement (including the SOW) due to a breach by the other party and failure to cure. The Company is reasonably certain not to exercise the termination option through December 31, 2022. Therefore, the Company used a term of May 1, 2019 through December 31, 2022 for purposes of the calculation of the ROU asset and lease liability.

The Company adopted Topic 842 as of January 1, 2019. Leases classified as operating leases are included in operating lease ROU assets, current operating lease liabilities and noncurrent operating lease liabilities in our December 31, 2019 consolidated balance sheet. The operating lease right-of-use asset and operating lease liability represents the Binney Street lease and the Azzur Suite lease. Finance leases are made up of laboratory and office equipment. Cash paid for amounts included in the present value of operating lease liabilities was $3.7 million during the year ended December 31, 2019 which is included in operating cash flows.

The components of lease cost for operating and finance leases for the year ended December 31, 2019 were:


Operating leases	$ (in thousands)
Operating lease cost	$	3,344
Short-term lease cost		330
Variable lease cost		1,092
		4,766
Finance leases
Depreciation on finance leases		188
Interest on finance leases		21
		209
Total lease cost	$	4,975

The right-of-use asset for the operating lease is disclosed on the consolidated balance sheet. The right-of-use asset for finance leases are classified within property and equipment, net, the total right-of-use asset for finance leases is $0.9 million.

The weighted average remaining lease term and the weighted average discount rate for operating and finance leases at December 31, 2019 was:

	Operating Lease			Finance Leases
Weighted average discount rate		8.0	%		6.1	%
Weighted average remaining lease term (years)		8.2			0.8

The following table reconciles the undiscounted cash flows for the operating and finance leases at December 31, 2019 to the operating and finance lease liabilities recorded on the balance sheet: December 31, 2019

Maturity of lease liabilities	Operating Leases		Finance Leases
	(in thousands)
2020	$	3,892	$	214
2021		4,236		2
2022		4,389		—
2023		3,574		—
2024		3,681		—
Thereafter		14,386		—
Total lease payments		34,158		216
Less: imputed interest		9,354		6
Total lease liabilities	$	24,804	$	210
Current lease liabilities		2,000		208
Long-term lease liabilities		22,804		2