What is the difference between a gray box and a white box delivery?

A gray box (also called a 'gray shell' or 'warm shell') is a delivery condition that sits between a cold dark shell and a white box. A gray box typically includes: concrete floors, exposed or open ceiling structure, electrical service to the space (but not distributed), HVAC mechanical equipment serving the space (but ductwork not distributed), and fire sprinkler mains (but not distributed). Unlike a white box, the gray box has no finished drywall, no ceiling tiles, no distributed lighting, and often no completed bathroom rough-in. The cost differential to finish a gray box to a tenant's requirements is typically $60–$120/sf, compared to $40–$80/sf from a white box.

What is a cold dark shell in commercial real estate?

A cold dark shell (also called a 'cold shell' or 'bare shell') is a commercial space delivered in the most raw condition possible — essentially four walls, a concrete floor, and a roof, with no mechanical, electrical, plumbing, or HVAC systems installed within the space itself. Utility services may be brought to the building but not into the tenant's space. Cold dark shells are most common in ground-up retail developments, industrial buildings, and new construction where the landlord builds the core and shell and the tenant designs and builds everything inside. Build-out costs from a cold dark shell typically range from $150–$350/sf depending on space type and finish level.

How does delivery condition affect TI allowance negotiations?

Delivery condition is one of the most important variables in TI allowance negotiations because it determines your actual out-of-pocket build-out cost. A landlord offering $50/sf TI on a white box space may be providing substantial real value, while the same $50/sf on a cold dark shell may cover only a fraction of your build-out costs. Always calculate your net effective TI by subtracting the estimated cost of work already completed in the delivery condition from your total build-out budget, then compare that to the TI offered. Tenants should insist on a detailed written specification of the delivery condition — called a 'Work Letter' or 'Landlord's Work' exhibit — attached to the lease so there is no ambiguity about what the landlord will provide.

What should a tenant verify before accepting a space delivery?

Before accepting delivery of a commercial space, tenants should: (1) Walk the space with their architect and general contractor to verify all items specified in the Work Letter have been completed; (2) Test all HVAC systems for proper operation, capacity, and balance across the space; (3) Verify electrical panel capacity and that circuits are labeled and functional; (4) Test sprinkler system and confirm it has been inspected and certified; (5) Check plumbing rough-in locations match the lease plans; (6) Document any items not completed or not matching the lease specification in a 'punch list'; (7) Confirm the certificate of occupancy (or equivalent) has been issued for the shell; and (8) Get written confirmation from the landlord of the 'Delivery Date' which starts the rent commencement clock. Never begin your own construction until delivery is formally acknowledged in writing.

What is a turnkey build-out in commercial leasing?

A turnkey build-out is when the landlord agrees to build out the space to the tenant's specifications and deliver a fully finished, ready-to-occupy space. Under a turnkey arrangement, the landlord manages all construction, pays all costs (up to an agreed budget), and delivers the space on a specific date. Tenants benefit from simplicity and speed, but often give up design flexibility and cost savings they might achieve by managing the build-out themselves. Turnkey deals are common in corporate build-to-suit transactions, franchise retail rollouts, and markets where landlords have construction relationships that give them cost advantages. The key negotiation points in a turnkey lease are the construction specification (what exactly is being built), the delivery deadline, delay penalties if delivery is late, and the tenant's change order rights.

White Box vs. Gray Box vs. Vanilla Shell: Commercial Lease Delivery Conditions Explained (2026)

Q: What is a white box delivery condition in a commercial lease?

A white box delivery (also called a 'vanilla box') is a partially finished commercial space that typically includes: finished drywall painted white, a suspended ceiling grid with ceiling tiles, HVAC system distributed to the space, electrical panels with circuits stubbed to the space, plumbing rough-in for bathrooms, sprinkler system installed, and lighting in the ceiling. The tenant is responsible for flooring, interior walls/partitions, finish plumbing fixtures, specialty lighting, millwork, and all custom finishes. White box delivery significantly reduces tenant build-out costs compared to a cold shell, typically requiring $40–$80/sf of additional tenant work compared to $100–$200/sf for a cold dark shell.

Why Delivery Condition Is a High-Stakes Lease Term

$150–$350 Per SF Build-Out Cost from Cold Dark Shell

$40–$80 Per SF Additional Cost from White Box

3–6 mo. Typical Build-Out Timeline Variance by Delivery Type

73% of Lease Disputes Involving Delivery Condition Ambiguity

Most tenants focus intensely on base rent, TI allowance, and lease term during negotiations — and those terms matter enormously. But delivery condition determines the actual starting point of your build-out, which directly controls:

How much TI budget you have left after the landlord’s work is complete
How long before you can open for business
What systems you need to design, permit, and install from scratch
Your construction cost exposure and budget accuracy
Your liability for defects in systems that predate your occupancy

⚠ Common Trap: Landlords sometimes use delivery condition terms interchangeably or differently than industry standard. “White box” in one market may mean something different in another. Always require a written, itemized specification of what the landlord will deliver — not just a term like “white box.”

The 5 Commercial Lease Delivery Conditions: A Complete Breakdown

1. Cold Dark Shell (Bare Shell)

A cold dark shell is the most raw delivery condition. The landlord delivers the building’s core and shell structure, and nothing more inside the tenant’s space. Typical cold dark shell delivery includes:

Concrete slab floor (unfinished)
Exterior walls and roof (weathertight)
Utility service brought to the building (gas, electric, water/sewer at the building’s main service entrance)
No HVAC equipment serving the space
No electrical distribution within the space
No plumbing within the space
No interior partitions or demising walls (except where required to separate from adjacent spaces)
No ceiling (exposed structural deck)
No fire sprinkler system within the space (or mains only)

🚫 Cost Reality: On a 5,000 sf retail space, building from cold dark shell to occupancy-ready typically costs $750,000–$1,750,000 ($150–$350/sf). If your TI allowance is $50/sf ($250,000), you are funding $500,000–$1,500,000 out of pocket.

Cold dark shells are most common in:

New ground-up retail developments and power centers
Ground-floor retail in new mixed-use projects
Industrial and flex buildings where tenants have highly custom requirements
Anchor tenant spaces where the anchor controls its own construction

2. Gray Box (Warm Shell)

A gray box delivers more than a bare shell but stops short of finished walls and ceilings. Typical gray box delivery includes:

Concrete slab or subfloor (unfinished)
Electrical panel installed and sized for the tenant (but circuits not distributed)
HVAC mechanical equipment serving the space (rooftop units or building system access), ductwork to the space but not distributed within
Fire sprinkler mains in the space (but not fully distributed/headed)
Plumbing rough-in to bathrooms (but no fixtures)
No finished drywall, no ceiling tiles, no interior lighting
Demising walls between adjacent suites

Gray Box Build-Out Cost Model — 3,000 SF Office Space

Tenant work from gray box:
HVAC distribution (ductwork + diffusers): $18,000
Electrical distribution (panel to circuits): $22,000
Plumbing fixtures + finish: $12,000
Fire sprinkler heads + distribution: $9,000
Drywall, framing, taping, paint: $42,000
Suspended ceiling grid + tiles: $18,000
Lighting fixtures: $24,000
Flooring (carpet + LVT): $27,000
Millwork + casework: $35,000
Doors + hardware: $18,000
Permit fees + architect: $28,000
General conditions (10%): $25,300

Total tenant construction cost: ~$278,300
Per SF: ~$93/sf

With TI allowance of $60/sf ($180,000): Tenant out-of-pocket = $98,300

3. White Box (Vanilla Box)

The white box is the most common delivery condition in multi-tenant office and inline retail. A true white box delivery includes:

Finished, painted drywall on all perimeter and demising walls
Suspended ceiling grid and ceiling tiles installed
HVAC system fully distributed to the space with registers/diffusers
Electrical panel with circuits distributed and stubbed to standard outlets
Fire sprinkler system fully distributed and headed
Plumbing rough-in completed, bathroom fixtures installed (toilets, sinks, lavatories)
Standard recessed lighting in the ceiling
Concrete floor ready for tenant flooring finish

What white box does not include (tenant’s responsibility):

Interior partition walls and offices
Flooring finish (carpet, LVT, hardwood, tile)
Specialty or accent lighting
Millwork, reception desk, casework, shelving
Signage
Data/telecom cabling and infrastructure
Window treatments
Kitchen/break room build-out

White Box Build-Out Cost Model — 5,000 SF Office Space

Tenant work from white box:
Interior partitions + glass offices (15 offices): $95,000
Doors + hardware for interior spaces: $28,000
Flooring (carpet + LVT entrance): $45,000
Supplemental lighting + electrical upgrades: $32,000
Reception millwork + casework: $55,000
Break room build-out (sink, cabinets, appliances): $22,000
Conference room AV + data: $35,000
IT/telecom cabling: $28,000
Permit fees + architect + PM: $42,000
General conditions (10%): $38,200

Total tenant construction cost: ~$420,200
Per SF: ~$84/sf

With TI allowance of $75/sf ($375,000): Tenant out-of-pocket = $45,200

4. Vanilla Shell

“Vanilla shell” is sometimes used interchangeably with “white box,” but in many markets it refers to a delivery condition slightly below a true white box. A vanilla shell typically includes finished exterior walls, HVAC, electrical, and sprinkler systems, but may have an open ceiling (exposed grid or deck) rather than finished ceiling tiles, and may not include bathroom fixtures. Always confirm exactly what the landlord means by “vanilla shell” in their market.

5. Turnkey Build-Out

In a turnkey delivery, the landlord or developer constructs the space to the tenant’s approved specifications and delivers a fully finished, ready-to-occupy space. The landlord bears construction risk (cost overruns, delays, quality) up to an agreed allowance. Above that threshold, the tenant pays via change orders or additional rent.

Turnkey deliveries are most common in:

Build-to-suit transactions for corporate headquarters or large users
Franchise rollout deals where the landlord builds to a prototype
Markets where landlords have institutional construction capabilities
Medical and healthcare tenants with highly regulated build-outs

✓ Turnkey Negotiation Tip: Always negotiate an “overage cap” in a turnkey deal — a maximum per-square-foot figure above which the landlord cannot require additional rent even if construction costs exceed budget. Without a cap, turnkey deals can become a mechanism for landlords to pass unlimited construction risk to tenants.

Delivery Condition Comparison Table

Item	Cold Dark Shell	Gray Box	White Box	Turnkey
Concrete Slab	✓ Unfinished	✓ Unfinished	✓ Unfinished	✓ Finished
Perimeter Drywall	No	Partial	✓ Finished + Painted	✓ Finished
Ceiling	None	Exposed	✓ Grid + Tiles	✓ Finished
HVAC	None	Mains only	✓ Distributed	✓ Distributed
Electrical	Service only	Panel only	✓ Distributed circuits	✓ Full
Sprinkler	None/mains	Mains only	✓ Fully headed	✓ Full
Plumbing/Bathrooms	None	Rough-in only	✓ Fixtures installed	✓ Full
Lighting	None	None	✓ Standard recessed	✓ Full + Specialty
Interior Partitions	No	No	No	✓ Per tenant plan
Flooring Finish	No	No	No	✓ Per tenant plan
Typical Add’l Tenant Cost	$150–$350/sf	$80–$140/sf	$40–$90/sf	$0–$30/sf overage
Timeline to Open	6–18 months	4–10 months	2–6 months	Per landlord schedule

The Work Letter: Your Most Important Delivery Document

The Work Letter (also called the “Tenant Work Letter,” “Construction Rider,” or “Exhibit B”) is the exhibit to your lease that specifies exactly what the landlord will build, to what standards, by what deadline, and at whose cost. It is the single most important document for tenants undertaking a significant build-out.

What a Comprehensive Work Letter Must Include

Landlord’s Work scope: An itemized, room-by-room description of every system and finish the landlord will complete, with specifications (e.g., “2-ton Carrier HVAC unit distributed to 12 diffusers per ASHRAE 55 comfort standards”)
Plans and specifications: Reference to approved architectural and engineering drawings, or a process for tenant approval of landlord’s plans
Material and equipment standards: Minimum specifications for equipment, brand standards where relevant
Substantial completion definition: What “substantially complete” means (typically 95%+ of work completed, space occupiable, only punch list items remaining)
Delivery deadline: Specific date by which Landlord’s Work must be substantially complete
Delay remedies: What happens if the landlord is late — typically a day-for-day abatement of rent commencement for each day of landlord delay
Punch list process: Procedure for tenant to identify defects, and landlord’s timeline to cure (typically 30–60 days)
Warranty provisions: Landlord’s warranty on Landlord’s Work (typically 1 year on workmanship, longer on HVAC equipment)
TI allowance mechanics: Amount, disbursement process, deadline for tenant to use, and what happens to unused TI

🚫 Danger Zone: Many landlord-form Work Letters say Landlord’s Work is delivered “in a commercially reasonable manner” or “substantially similar to neighboring suites” — without specifying what “substantially similar” means. This language is a litigation factory. Insist on itemized specifications, not qualitative standards.

Negotiating Delivery Condition: What Tenants Should Push For

1. Upgrade the Delivery Standard

If a landlord is offering a gray box but you need a white box, you have two options: negotiate the landlord to deliver a white box (often achievable by increasing TI allowance and requiring landlord to use it first for their work), or accept the lower delivery standard and ensure the TI allowance is large enough to cover the gap. Always model both scenarios:

Delivery Standard Upgrade Analysis — 4,000 SF Retail

Option A: Gray Box + $40/sf TI = $160,000
Estimated gray box completion cost: $110/sf = $440,000
Tenant out-of-pocket: $440,000 - $160,000 = $280,000

Option B: White Box + $30/sf TI = $120,000
Estimated white box completion cost: $65/sf = $260,000
Tenant out-of-pocket: $260,000 - $120,000 = $140,000

White Box delivers $140,000 less out-of-pocket cost even with lower TI

Request white box delivery: saves tenant $140,000 even with $10/sf lower TI

2. Specify HVAC Capacity and Balance

HVAC is the most common source of post-delivery disputes. The landlord may deliver functional HVAC that is technically operational, but insufficient for your actual occupancy density or equipment load. Push for the Work Letter to specify:

Minimum tons of cooling per 1,000 sf (typically 1 ton per 300–400 sf for office, more for high-density)
Required air changes per hour
Balancing report from an independent HVAC commissioning agent before delivery
Landlord warranty to maintain HVAC at capacity specifications for first 12 months

3. Require Electrical Load Calculations

Confirm that the electrical panel capacity delivered is sufficient for your actual equipment loads. A white box may include a 200-amp panel, but a technology company, medical practice, or food service tenant may need 400–600 amps. Upgrading a panel after occupancy can cost $15,000–$50,000 and require a temporary shutdown.

4. Lock In the Delivery Deadline with Penalties

Landlord delay in completing Landlord’s Work is one of the most common lease disputes. Negotiate a specific delivery date, and require that for every day the landlord is late (after a grace period), rent commencement is delayed by one additional day. For delays exceeding 60–90 days, negotiate a tenant termination right.

Landlord Delay Cost to Tenant (4,000 SF at $45/sf/yr base rent)

Monthly base rent: $15,000
Landlord delay: 45 days beyond delivery deadline

Without delay protection: Tenant begins paying rent on original date
Cost of 45 days rent during landlord delay: $22,500

With day-for-day abatement: Rent commencement moves 45 days
Cost of landlord delay to tenant: $0

Additionally: Tenant’s contractor may be delayed, adding mobilization
and re-scheduling costs of $15,000–$40,000

Day-for-day abatement clause saves tenant $22,500+ in rent on a single 45-day delay

Pre-Delivery Inspection Checklist

Before you sign the delivery acceptance, walk the space with your architect and general contractor using this checklist:

All items in the Work Letter are present and installed (compare against itemized list)
HVAC systems are operational, tested, and balanced — obtain commissioning report
Electrical panel is labeled, circuits are tested, panel is rated for your load requirements
Fire sprinkler system has been inspected and has current inspection certificate
Plumbing fixtures (if included) are installed, operational, and free of leaks
Ceiling grid is level, tiles are undamaged, no water stains indicating roof leaks
Drywall is painted, taped, and free of major defects (if white box)
No evidence of water intrusion, mold, or efflorescence on concrete slab
Certificate of Occupancy (or shell permit sign-off) has been issued
All punch list items from prior tenant (if any) have been remediated
Utility meters are in place and accounts established in landlord’s name (to transfer)
Demising wall between your space and adjacent tenant is complete and to STC standards

💡 Pro Tip: Never sign the delivery acceptance document on the day of the inspection. Take 48–72 hours to document deficiencies and submit a written punch list before signing. Once you accept delivery, your leverage to compel the landlord to cure defects diminishes dramatically.

Delivery Condition and TI Allowance: The Real Math

Tenants often evaluate TI allowances in isolation — $60/sf sounds better than $40/sf — without accounting for the delivery condition. The only number that matters is your net out-of-pocket build-out cost:

Net Out-of-Pocket Build-Out Cost = Total Construction Budget - TI Allowance

Scenario 1: Cold Shell + $100/sf TI on 5,000 SF
Construction cost (cold shell): $200/sf × 5,000 = $1,000,000
TI allowance: $100/sf × 5,000 = $500,000
Net out-of-pocket: $500,000

Scenario 2: White Box + $50/sf TI on 5,000 SF
Construction cost (white box): $70/sf × 5,000 = $350,000
TI allowance: $50/sf × 5,000 = $250,000
Net out-of-pocket: $100,000

Scenario 3: Gray Box + $75/sf TI on 5,000 SF
Construction cost (gray box): $120/sf × 5,000 = $600,000
TI allowance: $75/sf × 5,000 = $375,000
Net out-of-pocket: $225,000

White box with lower TI (Scenario 2) delivers the best tenant economics: $100K out-of-pocket

Industry-Specific Delivery Condition Considerations

Restaurant and Food Service

Restaurant tenants are almost universally delivered cold dark shells or gray boxes, because every food service operation has highly specific kitchen layout, ventilation (Type I and II hoods), grease trap, and utility load requirements that cannot be standardized. Budget $200–$400/sf for restaurant build-outs from shell condition, and confirm that the lease provides for:

Gas service sized for commercial kitchen equipment (typically 2”–3” gas line to space)
Grease interceptor location and sizing rights
Adequate electrical capacity for commercial cooking equipment (often 400–800 amp service)
Exhaust shaft access through the roof for Type I hood
Make-up air system rights

Medical and Healthcare

Medical tenants require above-standard HVAC (for infection control), plumbing (sinks in every exam room), and electrical (medical-grade circuits, emergency power). Confirm the delivery condition specifies HVAC capable of 6+ air changes per hour with 100% outside air for procedure rooms if applicable, dedicated circuits for diagnostic equipment, and ADA-compliant accessible path of travel from parking to the suite.

Industrial and Warehouse

Industrial deliveries are almost always cold dark shell — essentially the building envelope, concrete slab, and dock/grade-level doors. Tenants build office portions internally. Confirm the slab rating (PSI capacity for forklift loads), clear height (minimum 28’–36’ for modern logistics), number and size of dock doors, and power service capacity.

FAQ: Commercial Lease Delivery Conditions

What is a white box delivery condition in a commercial lease?

A white box delivery includes finished drywall, suspended ceiling with tiles, distributed HVAC, electrical circuits, fire sprinkler, and plumbing fixtures. The tenant is responsible for flooring, interior partitions, specialty lighting, millwork, and finishes. Additional tenant build-out costs from a white box typically range from $40–$90/sf.

What is the difference between a gray box and a white box?

A gray box (warm shell) delivers mechanical and electrical systems to the space but not distributed or finished — no drywall, no ceiling tiles, no distributed lighting. A white box has all systems distributed and installed, with finished painted walls and standard ceiling tiles. Gray box requires $30–$60/sf more tenant work than a white box.

How do I know exactly what I’m getting in a delivery?

Demand a detailed Work Letter attached to the lease as an exhibit. The Work Letter should itemize every system and finish element, with specifications (not just labels like “white box”). If the landlord won’t provide a detailed Work Letter, retain an architect or construction manager to verify the space before lease execution.

What happens if the landlord delivers a space that doesn’t match the Work Letter?

You have the right to reject delivery and require the landlord to complete the deficient work before the rent commencement clock starts. Document all deficiencies in writing, submit a punch list, and do not sign a delivery acceptance until the landlord either completes the work or you have negotiated a credit/abatement for the outstanding items. Signing delivery acceptance typically waives your ability to claim deficiencies were pre-existing.

Is turnkey always better for tenants?

Not always. Turnkey deliveries can reduce tenant control over design and quality, especially if the landlord uses lower-cost subcontractors. In a tenant-managed build-out, you choose your own contractor and control quality directly. Turnkey is best when you have a standardized prototype, the landlord has strong construction capabilities, or you lack the management bandwidth to oversee construction yourself.

Is Your Lease Delivery Condition Clearly Defined?

Upload your draft lease or Work Letter to LeaseAI and we’ll instantly identify ambiguous delivery terms, missing specifications, and negotiate-worthy gaps before you sign.

Analyze Your Work Letter Free →