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What Is a Shell Lease?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 04 September 2016
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    Conjecture Corporation
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A shell lease is a type of property lease in which the tenant agrees to make specific enhancements or even finish the interior construction of the building or buildings located on that property. While the term is often used in conjunction with leases that have to do with commercial properties, there are also examples of residential shell leases that allow tenants to take possession of gutted homes and restore the interiors over a the life of the lease.

With a commercial shell lease, the tenant will often rent a retail or office space that is nothing more than a shell. This can often be to the advantage of the tenant, since it is then possible to complete the interior to his or her specifications. For example, if the space in question is a storefront, the tenant can install lighting, electrical outlets, finish the walls and cover the floors to suit the layout for the new retail location. The terms of the lease will often identify the types of improvements that the tenant commits to making over the life of the lease, as well as defining and price breaks on rental fees that the owner will extend in exchange for the work being done.

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A residential shell lease provides the opportunity for a tenant to secure an inexpensive place to live in return for making specified improvements to the rental property, in particular the interior of the home. Those improvements can range from installing kitchen and bathroom cabinets, rebuilding interior walls, painting, laying carpeting or tile, or any other task that would take the shell of the home back into a usable condition. The cost of materials is often absorbed by the tenant, and must meet the approval of the owner as well as comply with local building codes. As with the commercial lease, the residential shell lease would require the tenant to accomplish specific tasks over the life of the lease in exchange for some sort of discounted rental rate.

One of the chief benefits of a shell lease is that tenants are able to secure space in a desirable area, then make the improvements according to a schedule that is both reasonable and timely. In exchange, the tenant pays a lower rental rate that makes the tasks all the more affordable. Property owners also benefit from this process, since there is no out of pocket expense incurred as part of the process of making the improvements.

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