Note 12. Leases

At September 30, 2022, the Company had operating leases for its offices, manufacturing facilities of ESS Metron, and a ground lease at the Rockdale Facility that expire on various dates through January 2032, inclusive of extension options the Company is reasonably certain will be exercised.

Rental expense for lease payments related to the Company’s operating leases is recognized on a straight-line basis over the remaining lease term. The Company currently does not hold any finance leases. The Company elected to use the practical expedient of not separating lease components for its real estate leases. The Company has elected the short-term lease exception provided, and therefore only recognizes right of use assets and lease liabilities for leases with a term greater than one year. Leases qualifying for the short-term lease exception were insignificant.

As of September 30, 2022 and December 31, 2021, the right of use assets were $21.8 million and $13.2 million, respectively, and the operating lease liabilities were $22.2 million and $13.4 million, respectively, in the accompanying unaudited condensed consolidated balance sheets related to our ground lease and office leases. Operating lease right of use assets are included within long-term assets on the unaudited condensed consolidated balance sheets.

During the nine months ended September 30, 2022, the Company executed a third lease amendment to the ground lease for the Rockdale facility, to add a second 100-acre tract of real property contiguous to the existing 100-acre tract on which the existing Rockdale Facility sits for an additional $0.9 million in annual payments. The initial term of the lease is scheduled to expire on January 31, 2032, followed by three ten-year renewal periods, unless terminated earlier. Concurrent with this third amendment, the Company executed a first amendment to the water reservation agreement to obtain additional non-potable cooling water from a nearby lake to be used by the Company for commercial purposes, such as evaporative cooling in our data center facility, for an additional $1.0 million in annual payments. The term of the original water reservation agreement was reset for a period of approximately twelve years from the original commencement date in April 2021, and is now scheduled to expire on January 31, 2032, followed by three ten-year renewal periods, unless terminated earlier.

The components of lease expense for the three and nine months ended September 30, 2022 (in thousands):

The following table presents other amounts related to our leases:

The following table presents our future minimum operating lease payments as of, and subsequent to, September 30, 2022 under ASC 842 (in thousands):

We recognize ground lease expense in cost of revenues – Data Center Hosting, and office and other lease expense in selling, general and administrative expenses, respectively, in the accompanying unaudited condensed consolidated statements of operations.