Two LOIs can both say "warm shell" and leave you with very different buildings to finish. There is no standard definition of shell, warm shell, white box, or as-is, so define what the landlord delivers in an exhibit. For a healthcare build, write the delivery condition item by item (HVAC, electrical service, water and sewer, fire sprinklers, slab, demising walls, restrooms, roof, hazardous materials, and accessibility outside your suite), verify each one with your contractor and engineer before you sign, and tie your delivery date and rent commencement to the landlord actually completing that list.
If you are signing leases this quarter for 2027 openings, read the delivery condition with your contractor before you sign. That language assigns the base-building work between you and the landlord, and on a healthcare build the items in question (HVAC, electrical service, water and sewer) are the most expensive systems in the building.
I have seen "warm shell" mean a new HVAC unit, an electrical panel at the suite, plumbing stubbed to the slab, and taped demising walls. I have also seen it mean an old unit on the roof, power somewhere in the building, and a sewer line nobody had located. In the second case, the HVAC replacement, the electrical upgrade, and the sewer work all came out of the tenant's construction budget.
What does each delivery term usually mean?
Definitions vary by market, by landlord, and by broker. Treat these as starting points for the conversation, not as anything a lease will enforce on its own:
- Cold shell. Structure, roof, and slab. Often no HVAC, no electrical distribution to the suite, and plumbing somewhere in the building. You build almost everything.
- Warm shell. Usually adds HVAC equipment sized for a typical office or retail user, electrical service to the suite, plumbing stubbed in, a fire sprinkler main, and demising walls. Sometimes adds a ceiling grid and lighting.
- White box or vanilla shell. Usually adds finished and painted perimeter walls, ceiling and lights, restrooms, and sometimes flooring. It looks ready, so check it against your program.
- As-is. Whatever is in the space today, including a prior tenant's buildout you may have to demolish, systems of unknown age, and anything behind the walls.
A white box built for an office tenant can still fall short for a clinic. Healthcare runs more plumbing fixtures, more exhaust, more HVAC zones, and heavier electrical loads than the user the landlord had in mind, so the definition that matters is the one that works for your program.
What should the delivery exhibit spell out for a healthcare build?
Attach a delivery exhibit to the LOI and the lease that lists each item, its condition, and who pays. For a clinic or PACE center, cover at least these:
- HVAC. Tonnage, unit age and condition, and who replaces a unit at the end of its life. A single rooftop unit can run $35,000 to $60,000 installed on a California project. Ask for units in good working order with a recent service report, or a landlord commitment to replace.
- Electrical service. Amperage and voltage delivered to a panel at the suite, not just available somewhere in the building.
- Water and sewer. Line size and stub locations. Healthcare water and sewer demand runs far higher than an office or retail user, and an undersized line means trenching the slab.
- Fire sprinklers. Whether there is a main to the suite, and whether the system can be modified for your layout without a full redesign.
- Slab and roof. A level slab without cracks you'll have to repair, and a roof in good condition with the warranty status stated. Roof penetrations for your exhaust and equipment have to be coordinated with that warranty.
- Demising walls. Built to full height, insulated, and fire-rated if your code path requires it.
- Restrooms. Whether core restrooms exist, whether they meet accessibility requirements, and whether your fixture count needs more.
- Hazardous materials. A current asbestos and lead survey, and abatement at the landlord's cost before delivery.
- Accessibility outside your suite. Your permit can trigger accessibility upgrades to parking, the path of travel, and common restrooms. Decide in the LOI who pays for work outside your four walls.
- Prior buildout. In an as-is or second-generation space, who demolishes what, and whether anything stays.
Ask your attorney to make the exhibit part of the lease, not just the LOI. If the standard is only in the LOI, it can drop out when the lease is drafted.
How does the delivery condition affect your schedule?
When the landlord does base-building work before you get the space, the landlord's schedule becomes the front of your critical path. Your contractor can't start until delivery, and if delivery slips, everything behind it slips with it. Manage it the same way you manage your own construction:
- Define delivery as a condition, not a date. The space is delivered when the exhibit items are complete and verified, not when the landlord sends a letter. Tie rent commencement to that, as I covered in what to negotiate in a healthcare LOI. On 6,000 square feet at $40 NNN, every month of rent before you can open is roughly $20,000.
- Walk the space at delivery. Your contractor and the landlord's representative walk it together against the exhibit and sign a punch list. Anything open has a completion date and a remedy.
- Ask for early access. Your contractor can often start layout, rough-ins, or long-lead coordination while the landlord finishes, if the lease allows it and the insurance is in place.
- Coordinate the two contractors. When the landlord's contractor and yours overlap, decide who controls the site, who pays for conflicts, and who carries the permit for what.
- Get warranties on the landlord's work. New HVAC equipment and roof work should come with warranties that pass through to you or that the landlord enforces.
What does "as-is" really cost?
As-is isn't automatically a bad deal. A landlord delivering as-is will often trade it for lower rent, more free rent, or a larger TI allowance, and in a second-generation medical space the prior buildout can save you money if the layout is close to what you need.
The risk comes from items you assume the landlord is covering. On a 6,000 square foot clinic, demolishing a prior buildout and replacing one HVAC unit you thought was fine can easily add $100,000 or more before you build a single exam room. If you find that out after the lease is signed, it comes out of your contingency or your opening date.
Price the delivery condition before you compare rents. Ask your contractor to price your buildout against each delivery standard, add what you'd pay for the gaps, and compare the total cost of getting to opening day, not the rent per foot.
How do you verify the delivery condition before you sign?
- Walk the space with your general contractor and an MEP engineer. Look at the roof, the electrical room, the HVAC units, and the slab, using the same eye I describe in what I look for when I walk a building.
- Ask the landlord for base-building drawings, HVAC service records, the roof warranty, and any hazardous materials survey.
- Run the test fit so you know your fixture count, exhaust needs, and electrical load before you write the exhibit.
- Write the delivery exhibit item by item, with condition and responsibility for each, and attach it to the LOI.
- Have your contractor price the gaps between what the landlord delivers and what your program needs.
- Tie delivery and rent commencement to completion of the exhibit, with a late-delivery remedy.
Send the exhibit back with your LOI comments, and have your contractor update the budget against it before you sign. If the landlord won't commit to an item, price it into your budget or into the deal.
Key takeaways
- Shell, warm shell, white box, and as-is have no standard definitions. The delivery exhibit defines what the landlord actually delivers.
- For a healthcare build, list HVAC, electrical service, water and sewer, fire sprinklers, slab, roof, demising walls, restrooms, hazardous materials, accessibility outside the suite, and prior buildout, with condition and responsibility for each.
- Define delivery as completion of the exhibit, not a calendar date, and tie rent commencement to it. On 6,000 square feet at $40 NNN, each month of early rent is roughly $20,000.
- As-is can be the right deal if the landlord trades it for lower rent or more TI, but gaps you assumed the landlord would cover can add $100,000 or more on a 6,000 square foot clinic.
- Walk the space with your contractor and engineer, run the test fit, and have the gaps priced before the LOI goes back.
Frequently asked questions
What is the difference between cold shell, warm shell, and white box?
There are no standard definitions, but in general a cold shell is structure, roof, and slab with few or no systems; a warm shell adds HVAC equipment, electrical service, plumbing stubs, a sprinkler main, and demising walls; and a white box adds finished walls, ceiling, lights, and restrooms. Because the terms vary by market and landlord, a healthcare tenant should define the delivery condition item by item in an exhibit attached to the LOI and lease.
What should a delivery condition exhibit include for a medical office or clinic?
HVAC tonnage and condition, electrical amperage delivered to the suite, water and sewer line size and stub locations, fire sprinkler mains, slab and roof condition, demising walls, restrooms, hazardous materials abatement, accessibility upgrades outside the suite, and responsibility for demolishing prior buildout. In Retained CRE's lease negotiations, we write each item with its condition and who pays, and confirm it against a test fit before the LOI is signed.
Is an as-is lease a bad deal for a healthcare tenant?
Not necessarily. Landlords often trade as-is delivery for lower rent, more free rent, or a larger TI allowance, and second-generation medical space can save money if the layout fits. The risk is assuming the landlord covers items that end up on your budget. Have your contractor walk the space and price demolition, HVAC, electrical, and plumbing gaps before you compare it to other options.
When does rent start if the landlord's delivery work is late?
That depends on the lease. A healthcare tenant should define delivery as completion of the delivery exhibit, verified at a joint walk, and set rent commencement a fixed number of days after delivery or at opening, whichever is later. Add a late-delivery remedy such as day-for-day free rent, so a slip in the landlord's work doesn't become rent you pay on a space you can't use.
Comparing Spaces for Your Next Clinic?
I walk buildings with operators, write the delivery exhibit against the test fit, and price the gap between what the landlord delivers and what the program needs before the LOI goes back.
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