4. COMMITMENTS AND CONTINGENCIES Operating Lease Commitment On November 29, 2011 and as amended on September 17, 2012, the Company entered into a commercial lease for 26,150 square feet of office, laboratory and manufacturing space in Cambridge, Massachusetts (as subsequently amended, the  Cambridge Lease ). The term of the Cambridge Lease is for six years and three months, with one five-year extension option. The Cambridge Lease also requires a standby letter of credit in the amount of $311,000 (see Note 3). The Cambridge Lease contains certain rent escalation clauses. The Company recognizes rent expense on a straight-line basis over the lease term and records the difference between the amount charged to expense and the rent paid as a deferred rent liability. As of March 31, 2014, the amount of deferred rent liability is $543,000 and is included in accrued expenses. It is the Company s policy to assess whether improvements made to the space rented under operating leases should be accounted for as  lessor  or  lessee  assets. If the landlord/lessor makes the improvements and presents the Company with the finished space on a  turnkey  basis, the Company views the assets as being lessor assets. When the Company does the remodeling work and receives an allowance that may or may not cover all the costs, the Company makes a judgment as to the classification between lessor and lessee assets. The Company considers an asset to be a lessor asset if all of the following criteria are met: · the lease specifically requires the lessee to make the improvement, · the improvement is fairly generic, · the improvement increases the fair value of the property to the lessor, and · the useful life of the improvement is longer than our lease term. If any of the above criteria are not met, the Company considers the assets to be lessee assets, which are recorded as leasehold improvements in the Company s consolidated balance sheets and payments received from the lessor to fund any portion of the cost of lessee assets are accounted for a