Chattels and Tenants’ Fixtures 1 Comment

Chattels and Tenants’ Fixtures

Proposition:
(1)  A tenant under a business lease can always (and at any time) remove chattels owned by him;
(2)  where an item is not a chattel but a fixture it forms part of the premises demised by the lease;
(3)  fixtures which qualify as “tenants’ fixtures” (sometimes called “trade fixtures”) may (subject to the tenant complying with certain conditions) be removed by the tenant during or at the end of the tenancy notwithstanding their status as part of the demised premises;
(4)  landlords often underestimate the extent of those parts of premises demised by a business lease which are removable i.e. are either chattels or tenants’ fixtures; and
(5)  for that reason, it is not usually a good idea to include a blanket exception of tenants’ fixtures from the description in the lease of the demised premises.

This post was prompted by the judgement of Mr Justice Morgan in the case of Peel Land and Property (Ports No. 3) Limited v T S Sheerness Steel Limited [2013] EWHC 1658 (Ch).  The facts of the case were admittedly extreme (as pointed out by Guy Fetherstonhaugh QC in his excellent article in The Estates Gazette of 13th July entitled “You can take it with you”) but the principals elucidated by Morgan J are of general application and are worth recalling.

Sheerness Steel WorksI cannot improve on Mr Fetherstonhaugh’s summary of the facts of the case.  Peel involved Sheerness Steelworks.  The steelworks comprised a site of around 50 acres and housed very large industrial plant, including a steel making plant and rolling mill capable of a yearly output of 850,000 tonnes of steel.  The machinery was on a vast scale; the casting machine, for example, was 36ft high, while the bar mill was 330m long and 5m wide.  The work to remove even part of this plant – the process plant – would involve massively complicated and specialist engineering tasks, take a minimum of 12 to 18 months, and cost £3m – £4m.  In the process, parts of the buildings housing the plant would have to be taken apart or demolished.  Morgan J nonetheless decided that all of the plant and machinery were either chattels or removable tenants’ fixtures; the one exception was a brick built furnace, which would have been substantially destroyed in the process of removal.

An important point in the Peel case is that the 125 year lease granted in 1971 included in clause 1 an obligation on the part of the tenant to erect a new building consisting of a fully equipped steel making plant and rolling mill, capable of producing not less than 50,000 tonnes of steel products per annum.  The tenant created the Sheerness Steelworks by duly erecting a building and equipping it as a steel making plant in accordance with its obligation to the landlord.  The claimant in Peel was the landlord under the 1971 lease and the defendant the tenant.  By the time of the case, the tenant had no further use for the steel making plant and wished to remove it.

The tenant’s argument was that it was entitled to remove the plant either because the plant consisted of removable tenants’ fixtures or even, in some cases, chattels.  The landlord asserted that the tenant had no right to remove any of the plant and contended that the express terms of the lease overrode the usual common law principles (enabling the tenant to remove chattels and tenant’s fixtures) and precluded the tenant from removing any of the plant. The express terms on which the landlord principally relied were clause 1 (above) and clause 2 (6) which prohibited the tenant from altering or changing the demised premises (which included the plant which the tenant sought to remove). The tenant contended the opposite: that the express terms of the lease did not override the terms of the general law.

sheerness steelThe landlord’s overarching submission was based on the tenant’s obligation under clause 1 to erect not only a building but also to introduce plant and equipment to provide a steel making plant and rolling mill as referred to above.  The landlord submitted that as a matter of commercial reality the position was the same as if the landlord had constructed a fully equipped steel making plant and rolling mill to the tenant’s specification, using a third party contractor.  In such a case, the buildings and the plant and equipment would belong to the landlord and would be let to the tenant; the tenant would not have been able to remove parts of the plant and machinery.  The landlord submitted that the 1971 lease produced the same commercial result and that the court should reach the same legal result as in a case where the landlord constructed and equipped and then let the building to a tenant.  The Judge rejected the landlord’s claim based on clause 1, and as a result needed to consider the general law as to the distinction between chattels and fixtures and as to the removability of tenants or trade fixtures on an item by item basis.

The following is an abbreviated summary of the Judge’s conclusions on the general law.  A chattel is personal property.  A fixture is something which was formerly a chattel but which has become real property because it has “acceded to the realty” to which it is considered to be annexed.  However, an item may be a fixture and therefore real property, but that is not necessarily the end of the story as some fixtures can be detached, whereupon they cease to be real property and become personal property again.  The general law allows some persons in some circumstances to detach a fixture in this way and this particularly applies in the law of landlord and tenant.

The test to distinguish between a chattel and a fixture, and the separate test to determine when a fixture is in law removable by a tenant, have both been considered in a large number of cases over many years.

Morgan J quoted at length from Woodfall on Landlord and Tenant, Loose-leaf Edition.  In order to avoid this post becoming far too long I can only refer selectively to the quotations relied upon by the Judge:-

Para. 13.131:  Woodfall refers to the three broad heads into which an object brought on to land might be classified as:-Woodfall-landlord-and-tenant

  • a chattel;
  • a fixture; or
  • part and parcel of the land itself

Para.13.131 continues by saying that in the law of  landlord and tenant the category of fixtures is further divided into landlord’s fixtures, which must be left by the tenant at the expiry of his lease, and tenant’s fixtures which the tenant is permitted to remove.

The next quotation from Woodfall was from Para.13.133 the content of which I will paraphrase.  The maxim of the common law was that whatever was attached to the land became part of the land.  Whether there has been a sufficient annexation to the land is a question of fact in each case.  It depends on all of the circumstances, in particular the degree of annexation and the object of annexation.

In considering the degree of annexation, the question is whether the article “can easily be removed without injury to itself or the fabric of the building”.  In considering the purpose of the annexation, all circumstances are going to be considered, the question being whether the articles are fixed “for the permanent and substantial improvement of the dwelling or merely for a temporary purpose, or the more complete enjoyment and use of it as a chattel”.  Woodfall notes that the early law attached great importance to the first test, i.e. the degree of annexation but that this proved harsh and unjust to limited owners and to tenants for years.  The second test was evolved to take care primarily of the limited owner, so a degree of annexation which in early times the law would have treated as conclusive may now prove nothing.  The following words are important enough to quote in full:-

“Today so great are the technical skills of the fixing and removing objects to and from the land that the second test is more likely than the first to be decisive.  The intention of the parties as to the ownership of a chattel fixed to land is only material so far as such intention can be presumed from the degree and purpose of the annexation.  The intention is therefore to be objectively ascertained.  The terms agreed between the fixer of the chattel and the owner of the land cannot affect the question whether, in law, the chattel has become a fixture and therefore in law belongs to the owner of the soil”.

Sheerness Steel WorksAt para. 13.136 Woodfall referred to the third category in para. 13.131:

“Where an article which was originally a chattel is built into the structure of a building, it will not usually be regarded as a fixture but as part of the building itself.

And later:-

“Thus “things may be made so completely a part of the land, as being essential to its convenient use, that even a tenant could not remove them. An example of this class of chattel may be found in doors or windows. Further examples of this class of chattel include fixed plate glass windows forming the exterior of a building; skylights; and hearths and chimney pieces installed to complete a house.”

In para. 13.138 Woodfall deals with the difficulties in determining the physical extent of a fixture and in para.13.141 further defines a tenant’s fixture as a chattel which is:

“annexed by a tenant to the land;

is so annexed either for the purposes of his trade or for mere ornament and convenience; and

physically capable of removal without causing substantial damage to the land and without losing its essential utility as a result of the removal.”

In para. 13.146 Woodfall further explains:

“It is of the essence of a tenant’s fixture that it is capable of removal without losing its essential utility and without causing serious damage to the property. Thus where a fixture can only be removed by being dismantled, it must, in theory at least, be capable of reassembly elsewhere.”

And in para.13.147:

Property damage“Where a tenant removes fixtures he has an obligation to make good damage caused by the removal of the fixtures. The obligation extends not only to damage to the structure but also damage to decorations. In addition the tenant must make good damage caused to the property by the original installation of the fixtures. Thus he must fill holes in the walls made in order to install exhaust fans, and replace skirting boards removed in order to allow the installation of ornamental panelling. But the structure need not be left in a perfect state; the state in which it is to be left is the state in which it would be most useful and beneficial to the landlords, or to those who might next take the property. This means that the premises must be left in a reasonable condition.”

Morgan J derived some assistance from the judgement of Kindersley V-C in Whitehead v Bennett (1858) 22 JP where the Vice-Chancellor said:-

“With respect to anything in the nature of machinery, engines or plant, or things substantial and solid, such as vats, utensils, etc these are all clearly within the right of removal as between landlord and tenant. All these things may either by taken away bodily, and are capable of being set up elsewhere; or if by reason of their bulk or complexity, it is necessary to take them to pieces, they can be put together in the same form in some other place, still retaining the general character of trade fixtures; about the right of the tenant to remove such fixtures there is no dispute. Take the case of a large steam engine, which it is impossible to remove in its integral condition, yet the right of removal will apply to it, notwithstanding that you must take it to pieces.”

Morgan J, later in his judgement, referred again to the three-fold classification between chattels, fixtures and buildings.  He posed the question “ Does that classification mean that a building can never be a removable tenant’s fixture?”  His answer was that much depends on what is meant by a “building” in the context.

Sheerness Steel WorksThe Judge applied all of the tests referred to above to over 100 items of plant and machinery and decided that in all cases (save for a building as referred to at the beginning of this post) the items were either chattels or tenant’s fixtures and fittings and were removable by the tenant. Having already dismissed the landlord’s argument that clause 1 of the lease should override the common law principles he also rejected the tenant’s second submission that the removal of the tenant’s fixtures was regulated by clause 2(6) of the lease and decided that the tenant was entitled to remove the items.  The Judge said:

“Having reviewed all of the terms of the lease, including clause 2(6), and recalling the general legal principle that a provision (which is to take away from a tenant the right which the tenant would otherwise have to remove tenant’s fixtures) must be expressed in clear terms, I have to determine whether clause 2(6) is in such terms. I consider that it is not sufficiently clear from the language of clause 2(6), read in the context of the lease as a whole, that the removal of a tenant’s fixture is an alteration or a change “in or to the said premises” given the definition of that phrase and the absence of any reference to fixtures in clause 2(6). It follows that clause 2(6) does not regulate the tenant’s ability to remove tenant’s fixtures.”

“The overall result is that the Defendant is entitled to remove from the premises the items which I have classified, in the course of this judgment, as chattels or as removable tenant’s fixtures.”

Chattels and Tenants’ FixturesMoving finally to the fourth proposition above (which I think is the real point here for practitioners), whilst agreeing that the circumstances in Peel were somewhat exceptional, they are not unique.  It is easy to imagine other premises where tenant’s fixtures are a major part of the demised premises e.g. a fully fitted out factory, shop or hotel.  The practice of legal advisors drafting leases was often to define the demised premises as excluding tenant’s fixtures and fittings.  The effect is that none of the covenants in the lease in relation to e.g. repair and alteration will apply to what might be considerable parts of the building, notwithstanding that although removable the items in question are indeed fixtures and part of the realty. I first made this point in the then precedents section of Hill and Redman’s Law of Landlord and Tenant (which I edited in the 1980s – the now thankfully long gone days of the “institutional lease”!)

I have seen many examples of this in practice and there must be a lot of subsisting leases which make the same mistake.  Looking at current published precedents, most of those I have looked at do not ( e.g. Butterworths Encyclopedia of Forms and Precedents and the precedents published by the Practical Law Company).  Ironically perhaps, a major exception is in the current edition of the precedents section of Hill and Redman (Butterworths), Division G Precedent L1 at Schedule 1 (although the position of the exclusion in the definition may give rise to doubt).  Another which is at least ambiguous is in Ross on Commercial Leases (Butterworths) Precedent 2, Lease of a Light Industrial Building on an Estate, which defines “The Premises” in clause 1.42.2.6 as including “Landlord’s fixtures and fittings, and fixtures of every kind that are from time to time in or on the Premises, whether originally fixed or fastened to or on the Premises or otherwise, except any fixtures installed by the Tenant [or any predecessors in title] which can be removed from the Premises without defacing them”.  It is not clear to me whether the exclusion extends to tenant’s fixtures the removal of which would deface the premises but where the tenant makes good the damage.

repairing damage causedConclusions for practitioners:

(1)  landlords should be made more aware of the nature and extent of chattels and tenant’s fixtures and of the tenant’s right of removal (particularly in the case of a lease containing a tenant’s obligation to build and fit out as in Peel, where the landlord might well assume, given that the covenant may be the principal consideration for the grant of the lease, that everything will revert to him);

(2)  as stated in proposition (4) at the beginning of this post, it is not usually a good idea to exclude tenants fixtures from the definition of the demised premises – in fact it is probably prudent (although strictly unnecessary) strictly to include them.

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This Post Has 1 Comment

  1. raymond cooper says:

    Comment received 05.08.2013 from Guy Fetherstonhaugh QC:-

    “I must say that I enjoyed your own commentary on Sheerness.

    I quite agree with you about the exclusion of fixtures from the definition of premises. It causes problems for enforcement of repairing obligations as well.

    Kind regards,

    Guy Fetherstonhaugh”

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