A dark shell refers to a commercial property that is leased to a tenant without interior improvements, such as heating, lighting, interior walls, plumbing, or air conditioning. A dark shell is also sometimes referred to as a cold dark shell, a cold shell, a grey shell, or a base shell. While dark shell leases are common, there are several other types of “shell leases,” which also lease a property to a tenant in a less than finished state. For instance, a warm shell (also referred to as a vanilla shell, a white shell, or a white box) typically has heating and A/C, plumbing, restrooms, and lighting, but may have other parts of the interior that are unfinished.

In many cases, a building may start out as a cold shell, but with the agreement that the landlord will make the necessary improvements to convert the building to a warm shell once the lease agreement is fully signed. Sometimes, a tenant improvement (TI) allowance will be offered in order to defer some of the costs that a tenant will incur by improving the building themselves.

It’s important to realize that when it comes to the finish level of a commercial property, there are a large number of variations and related descriptive terms. For example, some builders define a warm, gray shell as a property with an electrical panel and an HVAC unit provided, but without full electrical wiring or HVAC installation.

Overall, providing a cold shell or a cold dark shell means that a property owner will generally not have to spend as much at the outset of a project; meaning that they won’t need to take on as much commercial financing. However, unless a property is in a prime location, it can be somewhat more difficult to lease to new tenants without at least some degree of interior improvements. The contrast is true with providing a warm/vanilla shell for a property; upfront expenses will be greater, but it will generally be easier to find willing tenants to occupy the building.

The main benefit of a dark shell in commercial real estate is that it requires less upfront costs for the property owner, meaning they won't need to take on as much commercial financing. However, it can be more difficult to lease to new tenants without at least some degree of interior improvements. The contrast is true with providing a warm/vanilla shell for a property; upfront expenses will be greater, but it will generally be easier to find willing tenants to occupy the building.

The primary risk associated with a dark shell in commercial real estate is that it can be more difficult to find tenants willing to occupy the building without at least some degree of interior improvements. Additionally, the upfront costs for a dark shell are generally lower than for a warm shell, but the tenant may need to take on more of the costs of interior improvements. This can be mitigated by offering a tenant improvement (TI) allowance to defer some of the costs that the tenant will incur by improving the building themselves.

Common uses of a dark shell in commercial real estate include leasing to tenants without interior improvements, such as heating, lighting, interior walls, plumbing, or air conditioning. A dark shell is also sometimes referred to as a cold dark shell, a cold shell, a grey shell, or a base shell. In many cases, a building may start out as a cold shell, but with the agreement that the landlord will make the necessary improvements to convert the building to a warm shell once the lease agreement is fully signed. Sometimes, a tenant improvement (TI) allowance will be offered in order to defer some of the costs that a tenant will incur by improving the building themselves.

It’s important to realize that when it comes to the finish level of a commercial property, there are a large number of variations and related descriptive terms. For example, some builders define a warm, gray shell as a property with an electrical panel and an HVAC unit provided, but without full electrical wiring or HVAC installation.

When leasing a dark shell, it is important to consider the legal implications of the lease agreement. The landlord and tenant should both be aware of the terms of the lease, including the length of the lease, the amount of rent, and any other provisions that may be included. Additionally, the landlord should be aware of any local laws or regulations that may affect the lease agreement, such as zoning laws or building codes. Finally, the tenant should be aware of any potential liabilities that may arise from the lease, such as the responsibility for any damages to the property.

For more information on dark shell leases, please see the following resources:

• Commercial Lease Basics from Nolo
• What is a Commercial Lease? from The Balance Small Business
• Commercial Lease Agreements from The Balance Small Business