1. One form of a shell lease, a warm dark shell is a commercial or residential building with a minimally finished interior, usually without ceilings or lighting and sometimes lacking plumbing and interior walls. A warm dark shell is essentially the same as a Dark shell or Cold shell, but with a heating and cooling system (HVAC) included. A warm dark shell is considered ready to lease and ready for tenant improvements (TI's). Note that TI's will be much more extensive in a warm dark shell than in a vanilla shell building. In many cases, the landlord (the lessor) will offer financial incentives in the form of a tenant improvement allowance (TIA), which pays for or at least partially defrays the cost of any improvements necessary for the tenant (the lessee) to occupy the building itself. Tenant improvement allowances do not usually include furniture, fixtures, and equipment (FFE) or trade fixtures necessary for the tenant to conduct business. Usually no improvements are made to the warm dark shell until the lease agreement between the tenant and landlord has been negotiated and executed. This ensures that the landlord does not pay for improvements that are unnecessary or that the tenant does not want.
2. The lease agreement or contract for a warm dark shell building. A proper warm dark shell lease should describe in detail the tenant improvements (TI's) that are to be completed, and any other information necessary for construction of the building to be completed (commonly known as build-out) prior to tenant occupancy.
Also known as a Warm dark box.
Discussion: Like many real estate terms and phrases, practical use and meanings of those terms associated with shell leases (e.g., vanilla shell, base shell, cold shell, warm shell, etc.) differ by location and situation, sometimes even within the same region or municipal area. As they say, the devil is in the details. The lease or sales contract should clearly and exactly specify the degree to which construction of any sort of "shell" or "box" building has been or will be completed prior to tenant occupancy. As either a tenant or landlord, you should not assume that the other party's definitions of shell lease terminology are the same as yours. Get it in writing, and make sure you understand and agree with all the terms and conditions of the shell lease agreement before you sign. If necessary, have a real estate attorney review the contract prior to its execution.
Shell leasing and its various forms (warm, cold, base, etc.) are used primarily in commercial real estate, but are gaining popularity in upscale condominiums and townhouses and other high-end residential real estate transactions. The idea is to attract either tenants or buyers, or both, by offering customizable living units. Financial incentives in the form of tenant (or buyer) improvement allowances afford new residents the opportunity to select nearly all aspects of interior decor, including relatively large projects such as plumbing and fixtures, wiring, and interior walls.
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