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Being Constructive About Construction Terms

What do the construction terms that parties throw out in lease negotiations mean? What’s in a Vanilla Box (we know it’s not candy)? What makes it a Warm Vanilla Box rather than a plain-vanilla Vanilla Box or a Cold Dark Shell? Is a Vanilla Box the same as a White Box or White Shell? How much more work is necessary for Turnkey delivery? We lawyers generally don’t know what these phrases mean, but, in most cases, neither do our clients. Let’s examine some of these terms and their (possible) meanings.

Vanilla Box

Writing for commercial lenders, Joshua Stein and Obianuju Enendu have defined a Vanilla Box as a “shell interior of rentable space, with landlord-installed utilities, subfloor, and finished but unpainted drywall.” Joshua Stein & Obianuju A. Enendu, The Language of Commercial Real Estate Finance, 23 Prob. & Prop. 59 (Mar./Apr. 2009). But in leases (and probably in most loan situations), the meaning of Vanilla Box is not that certain.

The International Council of Shopping Centers (ICSC) defines Vanilla Box as “a space partially completed by the landlord based on negotiations between tenant and landlord.” ICSC’s Dictionary of Shopping Center Terms 118 (2001). So, the ICSC recognizes that the meaning of Vanilla Box depends on the degree of completion to which the parties have agreed. To make clear that there are no fixed characteristics of a Vanilla Box, the ICSC’s Dictionary continues, “Although every landlord’s definition is different, a vanilla box normally means HVAC (heating, ventilation, and air-conditioning), walls, floors, stockroom wall, basic electrical work, basic plumbing work, rear door, and storefront.” Id.

A Warm Vanilla Box or Shell is generally a Vanilla Box that includes HVAC and electrical and plumbing connections, whereas a Cold Dark Box or Shell probably does not have HVAC and lighting and may not even have connections for electricity or plumbing. See LandTerms.com, Online Real Estate Dictionary, Warm Vanilla Shell (Warm Vanilla Box), and Cold Dark Shell, http://landterms.com.

Some believe that the term Vanilla Box is used only in retail leases, and certainly it is commonly used to describe retail space. But property managers and construction professionals often use the term to describe office and residential finishes. Construction professionals also use the terms Grey Shell, White Box, Warm White Shell, Bare Shell, and Arctic Shell to describe types of commercial as well as residential finishes. See, e.g., id.; Tia Jenkins, Get Clear on Construction Language, Denv. Bus. J. (Mar. 16, 2013), https://bit.ly/3ja73mO. Like most terms that proliferate in trade publications, however, “any of these terms can take on a different meaning even to those working in the same region, the same municipality, or the same company.” Jenkins, supra.

Turnkey Space

For this term, we can be certain of one thing: space delivered in Turnkey condition is (or should be) more finished than Vanilla Box space—the tenant should be able to turn up with its merchandise and equipment and start conducting business. ICSC’s Dictionary of Shopping Center Terms 115 (2001). But a drafter can’t count on Turnkey meaning the same thing in all situations—few commercial spaces require no tenant improvements at all for the tenant’s use and occupancy. See Kristin N. Wilson, Turnkey Build-Outs, Law J. Newsletters (Jan. 2016), https://bit.ly/2QsKsW9.

Work Letters and Their Use

Fortunately for the parties, most leases do not rely on the term Vanilla Box, Turnkey, or these other terms, and they shouldn’t.

If it’s ostensibly Vanilla Box space, does the tenant expect the landlord to tape and float dry wall on the demising walls or just provide demising walls with studs? Is HVAC installed and connected, with vents? In other words, what will it take for the premises to be ready for the tenant’s millwork, paint, and light fixtures?

For Turnkey space, has the tenant provided its specifications in detail? Does the tenant need outlets at certain spots? What type of floor coverings, wall coverings, and ceilings does the tenant expect? Does it expect the landlord to install them? Or does the landlord expect to get away with delivering unfinished space for the tenant to paint and decorate?

The problem with these terms is that their meanings depend on the parties’ expectations, not the other way around. It’s up to the drafter to ask these questions and others so that the parties’ agreement can provide as much specificity as possible. Landlords and tenants are both best served by a work letter containing a definite description of the required condition of the premises when it is delivered to the tenant—not just vague terms that the parties think they understand but don’t.

Entity:

Stephen Liss

Contributing Author: Stephen Liss, UBS Financial Services Inc., 1285 Avenue of the Americas, 16th Floor, New York, NY 10019, stephen.liss@ubs.com. The Last Word Editor: Marie Antoinette Moore, Sher Garner Cahill Richter Klein & Hilbert, L.L.C., 909 Poydras Street, Suite 2800, New Orleans, LA 70112, (504) 299-2100.