Defining Commercial Fit Out Construction

Commercial construction has a term - “fit out” - which describes the work of building an interior commercial space to meet the requirements of an occupant. This is representative of office construction but also commercial construction in general. The landlord’s construction contractor will develop a “white box” or “shell” to make the office or commercial space ready for the occupant’s fit out - to be executed typically by the occupant’s contractor (although it occasionally could be the same contractor for the landlord’s shell).

Since fit outs are tailored for tenant requirements, for finishing the white box, they can be referred to as tenant improvements, or TIs. The elements and costs may be perceived to be covered by the tenant, but are often negotiated by the tenant with the landlord so that the landlord may cover some of the fit out costs. Commercial fit outs can include supplementary details such as:

• Raised floors
• Additional mechanical, IT and electrical elements
• Meeting and office rooms finished
• Signage installed
• Internal finishes (such as wood)
• Blinds and window furnishing
• Reception areas
• Furniture installed
• A/V equipment
• Kitchen areas completed
• Suspended ceilings
• Special lighting fixtures

These fit out elements are different than white box elements, which can include:

• Finished exterior
• HVAC
• Basic plumbing and electrical
• Basic ceilings and floors
• Doors and windows
• Bathrooms
• Stairs and elevators
• Emergency evacuation routes

These describe fit out and white box elements, however these items and definitions can be vague and uncertain. It can be invaluable therefore to form strong legal contracts - between the tenant, landlord and contractor - to explain:

• Who is going to cover costs of the commercial fit out, between the occupant and landlord
• How these costs will be covered (i.e., the landlord may allow a rent-free period to cover the fees of the fit out)
• The time difference between when the white box construction is to be completed as opposed to the commercial fit out construction beginning (occasionally these activities can overlap)
• Options allowed by the landlord such as provisions for tenant generators, extra equipment, uninterrupted power supply, etc.
• What specific furnishings will be installed by the tenant vs. the landlord
• The extent of finishing provided by the white box construction company; such as electrical, doors and plumbing
• Definitions of the terminology such as shell and core, white box and fit out

Both white box shells and fit outs are instrumental in commercial interior construction. White box shells meet basic landlord specifications while fit outs make commercial spaces move-in ready for occupant requirements. Often these services are provided by different contractors, but can be executed by the same. In all cases, a detailed legal contract with definitions is critical to nail down divisions of construction services and payments between the occupants and landlords.