A work letter is the part of a commercial lease that divides the physical scope of a space between landlord and tenant: what condition the landlord delivers, and what the tenant builds from there. That boundary — not the rent, not the allowance — is what decides most of a buildout's cost, because everything on the tenant's side of the line is the project. Delivery conditions vary from bare shell to turnkey, and the letter's words only mean something once they're checked against the actual space.
Why the Work Letter Decides Your Budget
Two tenants can sign leases in the same building, for the same rent, with the same allowance — and face completely different construction costs, because their spaces were delivered in different conditions. The work letter (sometimes a schedule of landlord's work, or delivery-condition language inside the offer to lease) is where that difference lives. It defines what the landlord provides before handover and, by omission, everything the tenant must build. Reading it precisely, and verifying it against the physical unit, is the highest-leverage hour in any tenant improvement project.
As with allowances, the split is a negotiation matter between your broker, lawyer, and the landlord — terms vary by deal, building, and market. The construction side of the question, which is what this article covers, is knowing what each delivery condition actually means for scope, and where the expensive ambiguities hide.
The Common Delivery Conditions
| Delivery condition | What the landlord typically provides | What typically lands on the tenant | Watch from the construction side |
|---|---|---|---|
| Bare / cold shell | Structure, roof, exterior walls — often little else | Nearly everything: services, distribution, washrooms, ceilings, finishes | The most deceptive condition — the space looks 'almost ready' but consumes the most budget |
| Warm shell / base building | A defined package — commonly service entries, base HVAC, core washrooms; the specifics differ per deal | Distribution, partitions, power and data to suit, finishes, and use-specific systems | The definition of the package is everything; 'HVAC provided' can mean a rooftop unit with no ductwork to your layout |
| Previously improved (as-is) | The prior tenant's improvements, in whatever condition they're in | Demolition of what doesn't suit, plus everything the new use needs | Existing conditions rule: what's behind the walls and above the ceiling decides cost, and only a site walk reveals it |
| Turnkey | A completed buildout to an agreed plan and specification | Changes, upgrades, and anything outside the agreed spec | The specification and change process carry all the risk — scrutinize both before agreeing |
Where the Expensive Ambiguities Hide
- Capacity versus distribution: A building can have ample electrical service or HVAC capacity while the lease leaves the distribution — ductwork, circuits, controls to your layout — on the tenant's side. Systems 'existing' at the building is not the same as systems serving your space.
- The state of 'existing' systems: In previously improved space, who is responsible if what's there turns out to be at end of life, undersized for the new use, or non-functional? If the lease is silent, the answer usually becomes a negotiation under time pressure — better to settle it before signing.
- Upgrades triggered by your project: New uses and new permits can trigger upgrades — accessibility, life-safety, base-building systems — particularly in older buildings. Which side of the line those land on varies by lease and municipality, and is exactly the kind of item to identify during planning rather than assume.
- Demolition: Clearing the previous tenant's improvements is real scope. Some deals deliver the space demolished; others hand it over as-is. Confirm which project yours is.
- Timing and condition at handover: The letter describes a condition; the handover delivers a reality. A documented walk-through at possession — against the letter, with photos — protects both sides.
Reading the Letter Against the Actual Space
A work letter is words; a unit is drywall, ducts, panels, and slab. The step that connects them is a site walk with your contractor while the deal is still being negotiated: verify what's physically present, compare it against the promised delivery condition, and price the gap between the space as it will be handed over and the space your business needs. On tenant improvements we've delivered across the Lower Mainland — offices, clinics, restaurants, retail, and bank branches — the projects that went smoothly were consistently the ones where that gap was measured before signatures, not discovered after.
How the Boundary Interacts With the Allowance
The work letter and the TI allowance are two halves of the same economic conversation: one moves scope between the parties, the other moves money. A generous allowance against a bare-shell delivery can be worth less than a modest allowance against a well-defined base-building package. Neither number means anything in isolation — which is why the useful comparison is always total tenant-side cost, from a scoped estimate, against the total inducement package.
Before You Sign: Work-Letter Checklist
- Get the delivery condition in writing with definitions — not just a label like 'base building'
- Walk the unit with your contractor and verify the letter against what's physically there
- Price the gap: a preliminary estimate for your use, starting from the promised handover condition
- Settle responsibility for existing systems' condition, demolition, and project-triggered upgrades explicitly
- Align the work letter with the allowance's eligible-costs language — scope and money should describe the same project
- Document the space at possession against the letter, with photos