Shell Lease

DEFINITION of 'Shell Lease'

A commercial lease in which a tenant rents a property with an unfinished interior to which he or she will finish construction and make improvements. The rented property is an unfinished "shell" of a building, often a unit in a new shopping center, where the tenant must complete construction and add any necessary furniture, fixtures and equipment (FFE).

BREAKING DOWN 'Shell Lease'

A shell lease exists in many forms depending on the work that has already been completed on the property and the work that remains to be done. The tenant in a shell lease, for example, might undertake considerable portions of the construction by installing ceilings, interior walls, lighting, plumbing, elevators, wiring and heating, and ventilation and cooling (HVAC) systems. A shell lease specifies the construction and improvements for which both the landlord and tenant are responsible. Often the landlord will provide a financial incentive to the renter for completing the work.

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