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A plain vanilla shell commercial lease can be incredibly beneficial for both a tenant and a landlord. Leasing a shell, also known as a vanilla box, is when the space is either unfinished or partially finished – something seen very commonly in commercial real estate. The confusing part comes with the fact that different terms used with shell leases may actually mean different things according to location, state, or even just the situation itself. Therefore, the condition must be accurately stated and described to the tenant within the commercial lease.
A plain vanilla shell / white box, sometimes also called a warm shell, refers to a building that has an interior with basic finishing. This often includes a ceiling, lighting, plumbing, HVAC, sometimes painted walls, electrical outlets, elevators (if necessary), rest rooms, and a concrete or finished flooring. This type of space is considered to be almost completed and allows for a short move-in time as well as the ability for the tenant to design the space however they like. The state of repair of the premises should be stated in your letter of intent.
A grey shell, also known as a cold shell, is the opposite of a vanilla shell. It is considered to be completely unfinished – bare walls, no plumbing or electrical, no ceiling, unfinished flooring, no ductwork or controls for the HVAC if it is even included. A grey shell still requires more work and construction to be completed before a tenant can actually move in. The cost to complete a vanilla shell is often much lower than that to complete a grey shell.
When a landlord offers a tenant a plain vanilla shell, along with it they will often offer financial incentives that are in the form of a tenant improvement allowance (TIA). The purpose of the tenant improvement allowance is that it will pay for partial costs of improvements that the tenant finds necessary to move in. However, these tenant improvements do not include furniture, fixtures, or any equipment. These improvements are not completed until the lease agreement is negotiated and signed – which ensures that the landlord does not pay for anything that they or the tenant deems to be unnecessary.
Leasing a plain vanilla shell provides benefits to both the tenant and the landlord. The tenant is provided with a space that is completely customizable to their standards and the landlord will not be wasting amenities and resources during construction that the tenant may not even want installed. A fully customizable space is also very attractive to many tenants and therefore makes it easier for the landlord to find someone to lease their space.
As a tenant, it is critical to ensure that the lease accurately describes the state of the space being leased, detailed tenant improvements (TIs) that are going to be completed, and any other important information regarding the remained of the construction of the space.
Never assume the definition of a vanilla shell in your lease – remember it differs between regions, states, situations, and landlords.
When you are negotiating your lease, make sure that you have a very clear and detailed understanding of the current and future conditions of the space. You can even request that a contractor examine the space to verify that it is as stated in the lease.
Looking for some answers to other questions about your commercial lease? Check out this video that is anything but plain vanilla (#DadJoke):