8. COMMITMENTS AND CONTINGENCIES

Legg Mason leases office facilities and equipment under non-cancelable operating leases, and also has multi-year agreements for certain services. These leases and service agreements expire on varying dates through fiscal 2028. Certain leases provide for renewal options and contain escalation clauses providing for increased rentals based upon maintenance, utility and tax increases.

As of March 31, 2016, the minimum annual aggregate rentals under operating leases and service agreements are as follows:



2017	$	128,023
2018	109,368
2019	88,644
2020	79,765
2021	73,432
Thereafter	225,678
Total	$	704,910

The minimum rental commitments shown above have not been reduced by $140,780 for minimum sublease rentals to be received in the future under non-cancelable subleases, of which approximately 35% is due from one counterparty. The lease reserve liability, which is included in the table below, for space subleased as of March 31, 2016 and 2015, was $31,745 and $43,726, respectively. If a sub-tenant defaults on a sublease, Legg Mason may incur operating charges to adjust the existing lease reserve liability to reflect expected future sublease rentals at reduced amounts, as a result of the then current commercial real estate market.

The above minimum rental commitments include $633,350 in real estate and equipment leases and $71,560 in service and maintenance agreements.

The minimum rental commitments shown above include $32,395 for commitments related to space that has been vacated, but for which subleases are being pursued. The related lease reserve liability, also included in the table below, was $20,495 and $2,213 as of March 31, 2016 and 2015, respectively, and remains subject to adjustment based on circumstances in the real estate markets that may require a change in assumptions or the actual terms of a sublease that is ultimately secured. The lease reserve liability takes into consideration various assumptions, including the expected amount of time it will take to secure a sublease agreement and prevailing rental rates in the applicable real estate markets.

During fiscal 2016, certain headquarters space was permanently vacated to pursue a sublease and certain office space was permanently vacated in connection with the restructuring of Permal for the combination with EnTrust, both of which are reflected in the lease reserve liability in the table below.

The lease reserve liability for subleased space and vacated space for which subleases are being pursued is included in Other current liabilities and Other non-current liabilities in the Consolidated Balance Sheets. The table below presents a summary of the changes in the lease reserve liability:



Balance as of March 31, 2014	$	55,500
Accrued charges for vacated and subleased space ^{(1) (2)}	9,023
Payments, net	(15,001		)
Adjustments and other	(3,583		)
Balance as of March 31, 2015	45,939
Accrued charges for vacated and subleased space ^{(1) (2)}	14,642
Payments, net	(12,689		)
Adjustments and other	4,348
Balance as of March 31, 2016	$	52,240


(1)	Included in Occupancy expense in the Consolidated Statements of Income (Loss)


(2)	Includes $7,212 related to the restructuring of Permal for the merger with EnTrust and $6,760 related to the integration of Batterymarch and LMGAA into QS Investors for the years ended March 31, 2016 and 2015, respectively. See Note 2 for additional information.

The following table reflects rental expense under all operating leases and servicing agreements:



	2016		2015		2014
Rental expense	$	135,850	$	136,414	$	130,880
Less: sublease income	21,154		19,672		16,289
Net rent expense	$	114,696	$	116,742	$	114,591

Legg Mason recognizes rent expense ratably over the lease period based upon the aggregate lease payments. The lease period is determined as the original lease term without renewals, unless and until the exercise of lease renewal options is reasonably assured, and also includes any periods provided by the landlord as a "free rent" period. Aggregate lease payments include all rental payments specified in the contract, including contractual rent increases, and are reduced by any lease incentives received from the landlord, including those used for tenant improvements.

As of March 31, 2016, Legg Mason had commitments to invest $28,859 in limited partnerships that make private investments. These commitments are expected to be outstanding, or funded as required, through the end of their respective investment periods ranging through fiscal 2024.

As of March 31, 2016, Legg Mason had various commitments to pay contingent consideration relating to business acquisitions. The following table presents a summary of the maximum remaining contingent consideration and changes in the contingent consideration liability for each of Legg Mason's recent acquisitions. See Note 2 for additional details regarding each significant acquisition.



	RARE Infrastructure		Martin Currie			PK Investments		QS Investors		Fauchier			Total
Acquisition Date	October 21, 2015		October 1, 2014			December 31, 2015		May 30, 2014		March 13, 2013
Maximum Remaining Contingent Consideration⁽¹⁾	$	81,320	$	467,076		$	2,469	$	30,000	$	28,743		$	609,608
Contingent Consideration Liability
Balance as of March 31, 2014	$	—	$	—		$	—	$	—	$	29,553		$	29,553
Initial purchase accounting accrual⁽²⁾	—		75,211			—		13,370		—			88,581
Foreign exchange and accretion	—		(5,097		)	—		183		(2,436		)	(7,350		)
Balance as of March 31, 2015	—		70,114			—		13,553		27,117			110,784
Initial purchase accounting accrual⁽²⁾	25,000		—			2,457		—		—			27,457
Payment	—		—			—		—		(22,765		)	(22,765		)
Foreign exchange and accretion	2,145		(531		)	12		196		662			2,484
Fair value adjustment	—		(28,361		)	—		—		(5,014		)	(33,375		)
Balance as of March 31, 2016	$	27,145	$	41,222		$	2,469	$	13,749	$	—		$	84,585
Balance Sheet Classification
Current Contingent consideration	$	7,001	$	12,846		$	—	$	6,549	$	—		$	26,396
Non-current Contingent consideration	20,144		28,376			2,469		7,200		—			58,189
Balance as of March 31, 2016	$	27,145	$	41,222		$	2,469	$	13,749	$	—		$	84,585


(1)	Using the applicable exchange rate as of March 31, 2016 for amounts denominated in currencies other than the U.S. dollar.


(2)	Using the applicable exchange rate on the date of acquisition for amounts denominated in currencies other than the U.S. dollar.

In the normal course of business, Legg Mason enters into contracts that contain a variety of representations and warranties and that provide general indemnifications, which are not considered financial guarantees by relevant accounting guidance. Legg Mason’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against Legg Mason that have not yet occurred.

Legg Mason has been the subject of customer complaints and has also been named as a defendant in various legal actions arising primarily from asset management, securities brokerage, and investment banking activities, including certain class actions, which primarily allege violations of securities laws and seek unspecified damages, which could be substantial. In the normal course of its business, Legg Mason has also received subpoenas and is currently involved in governmental and industry self-regulatory agency inquiries, investigations and, from time to time, proceedings involving asset management activities. In accordance with guidance for accounting for contingencies, Legg Mason has established provisions for estimated losses from pending complaints, legal actions, investigations and proceedings when it is probable that a loss has been incurred and a reasonable estimate of loss can be made.

Legg Mason cannot estimate the reasonably possible loss or range of loss associated with matters of litigation and other proceedings, including those described above as customer complaints, legal actions, inquiries, proceedings and investigations. The inability to provide a reasonably possible amount or range of losses is not because there is uncertainty as to the ultimate outcome of a matter, but because liability and damage issues have not developed to the point where Legg Mason can conclude that there is both a reasonable possibility of a loss and a meaningful amount or range of possible losses. There are numerous aspects to customer complaints, legal actions, inquiries, proceedings and investigations that prevent Legg Mason from estimating a related amount or range of reasonably possible losses. These aspects include, among other things, the nature of the matters; that significant relevant facts are not known, are uncertain or are in dispute; and that damages sought are not specified, are uncertain, unsupportable or unexplained. In addition, for legal actions, discovery may not yet have started, may not be complete or may not be conclusive, and meaningful settlement discussions may not have occurred. Further, for regulatory matters, investigations may run their course without any clear indication of wrongdoing or fault until their conclusion.

In management's opinion, an adequate accrual has been made as of March 31, 2016, to provide for any probable losses that may arise from matters for which the Company could reasonably estimate an amount. Legg Mason's financial condition, results of operations and cash flows could be materially affected during a period in which a matter is ultimately resolved. In addition, the ultimate costs of litigation-related charges can vary significantly from period-to-period, depending on factors such as market conditions, the size and volume of customer complaints and claims, including class action suits, and recoveries from indemnification, contribution, insurance reimbursement, or reductions in compensation under revenue share arrangements.

As of March 31, 2016 and 2015, Legg Mason's liability for losses and contingencies was $400 and $200, respectively. During fiscal 2016, 2015, and 2014, Legg Mason incurred charges relating to litigation and other proceedings of approximately $250, $200, and $200, respectively (net of recoveries of $19,300 in fiscal 2014).

As further described in Note 2, Legg Mason may be obligated to settle noncontrolling interests related to RARE Infrastructure. The balance of the related noncontrolling interests was $67,155 as of March 31, 2016. Also, as further described in Note 11, in April 2016, in conjunction with the Permal restructuring in preparation for the combination with EnTrust, the Permal management equity plan was liquidated with the payment of $7,150 to its participants.

As further described in Note 18, subsequent to March 31, 2016, Legg Mason acquired Clarion Partners and EnTrust. Both of these acquisitions resulted in redeemable noncontrolling interests and the Clarion Partners acquisition terms included the implementation of an affiliate management equity plan.