COMMITMENTS AND CONTINGENCIES Letters of Credit and Performance Bonds During the ordinary course of business, certain regulatory agencies and municipalities require the Company to post letters of credit or performance bonds related to development projects. As of December 31, 2019 and 2018 , letters of credit outstanding were $9.0 million and $2.2 million , respectively, and performance bonds outstanding totaled $5.4 million and $5.3 million , respectively. The Company does not believe that it is likely that any material claims will be made under a letter of credit or performance bond in the foreseeable future. Warranties Warranty activity, included in accrued expenses in our consolidated balance sheets, for 2019 , 2018 and 2017 consists of the following (in thousands): 2019 2018 2017 Warranty accrual, beginning of period $ 2,980 $ 2,083 $ 1,210 Warranties issued 3,358 2,384 1,454 Changes in liability for existing warranties 37 163 482 Settlements (2,535 ) (1,650 ) (1,063 ) Warranty accrual, end of period $ 3,840 $ 2,980 $ 2,083 Operating Leases The Company has leases associated with office and design center space in Georgia, Texas, and Florida that, at the commencement date, have a lease term of more than 12 months and are classified as operating leases. The exercise of any extension options available in such operating lease contracts is not reasonably certain. Operating lease cost of $1.3 million for these leases for the year ended December 31, 2019 is included in selling, general and administrative expense in the consolidated statements of income. For the year ended December 31, 2019 , cash paid for amounts included in the measurement of operating lease liabilities was $1.2 million . Rental expense for these leases totaled $1.2 million and $0.9 million for the years ended December 31, 2018 and 2017 , respectively, and was included in selling, general and administrative expense in the consolidated statements of income. As of December 31, 2019 , the weighted-average remaining lease term and the weighted-average discount rate used in calculating our lease liabilities were 3.3 years and 5.22% , respectively. The future annual undiscounted cash flows in relation to the operating leases and a reconciliation of such undiscounted cash flows to the operating lease liabilities recognized in the consolidated balance sheet as of December 31, 2019 are presented below (in thousands): 2020 $ 1,320 2021 1,096 2022 819 2023 1,218 2024 14 Total future lease payments $ 4,467 Less: Interest $ 903 Present value of lease liabilities $ 3,564 The Company elected the short-term lease recognition exemption for all leases that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. For such leases, the Company does not recognize ROU assets or lease liabilities and instead recognizes lease payments in the consolidated income statements on a straight-line basis. Short-term lease cost of $0.4 million for the year ended December 31, 2019 related to such lease contracts is included in selling, general and administrative expense in the consolidated statements of income. Legal Matters Lawsuits, claims and proceedings may be instituted or asserted against us in the normal course of business. The Company is also subject to local, state and federal laws and regulations related to land development activities, house construction standards, sales practices, title company regulations, employment practices and environmental protection. As a result, the Company may be subject to periodic examinations or inquiry by agencies administering these laws and regulations. The Company records an accrual for legal claims and regulatory matters when they are probable of occurring and a potential loss is reasonably estimable. The Company accrues for these matters based on facts and circumstances specific to each matter and revises these estimates when necessary. In view of the inherent difficulty of predicting outcomes of legal claims and related contingencies, the Company generally cannot predict their ultimate resolution, related timing or eventual loss. If evaluations indicate loss contingencies that could be material are not probable, but are reasonably possible, the Company will disclose their nature with an estimate of the possible range of losses or a statement that such loss is not reasonably estimable. We believe that the disposition of legal claims and related contingencies will not have a material adverse effect on our results of operations and liquidity or on our financial condition.