Leasing a shell space—meaning a property that is essentially an empty shell, often without finished interior walls, floors, or ceilings—requires significant due diligence on the part of the prospective tenant. Here are several areas that a leaseholder should investigate before committing to a lease:
- Permits and Zoning: Verify whether the zoning allows for your intended use of the space. If you plan to renovate the shell space, make sure that you’ll be able to secure the necessary permits and that the building is up to code.
- Building Condition: Engage a qualified professional to inspect the building’s structural elements, electrical systems, plumbing, HVAC, etc. Since shell spaces often lack these improvements, it’s crucial to assess whether the building is properly equipped to handle them.
- Renovation Costs: Get estimates from contractors regarding the cost of converting the shell space into usable space. These costs can be substantial and should be factored into your decision. It’s also essential to clarify who will be responsible for these costs – the landlord or the tenant?
- Lease Terms: Make sure that the lease terms reflect the nature of the shell space. Is there a build-out allowance provided by the landlord? Will the landlord participate in the construction costs? How much time will you have to complete the improvements?
- Utilities: Verify whether the shell space has necessary utilities like water, electricity, and internet. If not, factor in the cost and time required to install these services.
- Environmental Issues: Consider an environmental assessment of the property to ensure there are no problems like contamination that could complicate your use of the space.
- Architectural Plans: You may need to hire an architect to create a design plan for the shell space. Review these plans carefully to ensure they meet your business needs and align with your budget.
- Contractor Agreements: If you are going to be responsible for the build-out, carefully review any agreements with contractors. Be sure that the terms are clear and that you have mechanisms in place to handle any potential disputes or delays.
- Potential Delays: Construction projects often encounter delays. Factor in potential overruns when considering your opening date.
- Legal Counsel: It may be beneficial to have a real estate attorney review the lease agreement to ensure your interests are protected, particularly when dealing with a shell lease, which often involves more complex negotiation and build-out clauses.
Doing proper due diligence before leasing a shell space can save significant time, money, and headaches in the long run.