Who Pays for What? Clarifying Landlord vs. Tenant Responsibilities in a Finish-Out

Finding the right commercial space feels like a win. You like the location. The layout works. The numbers almost make sense.

Then the lease shows up.

Before you sign anything, there is one section that deserves more attention than almost any other: the part that defines what the landlord is delivering, what you are responsible for, and how your tenant finish-out is supposed to happen.

Most cost overruns in commercial build-outs don’t start on the job site. They start in the lease.

Misunderstanding responsibility can leave tenants paying for work they assumed was included, discovering too late that major systems are missing, or burning through their improvement allowance long before the space is usable.

The two halves of a commercial space

While every lease is negotiable, most commercial agreements divide responsibilities into two categories.

The landlord delivers the "shell"

The landlord is typically responsible for providing a base condition for the space. This is often described as a “shell,” and it can vary widely.

A cold, dark shell is essentially structural only. You may get a roof, exterior walls, and a slab. Everything else, like electrical, plumbing, HVAC, and lighting, becomes part of the tenant’s project.

A warm or vanilla shell is more common. This usually includes the building structure, finished exterior walls, a main electrical panel, a primary HVAC unit with a trunk line, and sometimes basic lighting and ceiling. What it does not include is a finished business space.

The exact condition matters. A lot.

The tenant builds the business

The tenant finish-out is what transforms the shell into something operational. This commonly includes interior framing, all finishes, lighting layouts, power and data distribution, HVAC ducting, plumbing build-out, doors, hardware, millwork, and any systems unique to your business.

Restaurants, medical offices, salons, and retail spaces often carry additional infrastructure requirements that are almost never part of the shell.

Assuming something is included because “it’s a commercial building” is how budgets quietly break.

Why the work letter controls everything

Inside most commercial leases is a document often called the work letter. This is the technical backbone of the deal.

It defines:

• what condition the landlord is actually delivering,
• what construction responsibilities fall to each party,
• and what the Tenant Improvement Allowance truly applies to.

This is where the real project scope lives. If the work letter is vague, optimistic, or misunderstood, disputes and budget gaps are almost guaranteed.

How Five Mile helps clients before construction starts

At Five Mile Construction, we regularly review work letters with clients before final signatures. Not as attorneys, but as builders who understand what these words turn into on a job site.

We help identify missing scope, flag expensive assumptions, and evaluate whether the improvement allowance realistically matches the space you’re trying to build.

That conversation often saves clients far more than any construction-time adjustment ever could.

Before you commit to a lease, make sure you actually understand what you’re buying into. Contact Five Mile Construction and let’s look at the details before they become problems.