Questions often arise from both tenants and landlords as to whether heavy plant and machinery either has to be, or can be, removed at the expiry of a lease. In determining the position, there are a number of factors to consider.
Q: Is it a tenant fixture or chattel?
Whether an item is a fixture or a chattel will be a deciding factor in whether the item can be removed at the end of the term. The general rule is that tenant fixtures are part of the land and belong to the landlord at the end of the term. A tenant may have the right to remove certain fixtures so long as it does so prior to the end of the term.
Whether an item is a fixture or a chattel will depend upon the degree of annexation to the land in question as well as its purpose – was it intended that the item could be removed? In determining whether an item is a fixture or a chattel, the court will consider:
1. To what extent is the item annexed to the land?
2. For what purpose was the item brought onto the land?
3. Is it capable of removal without causing substantial damage to the property upon which it is situate?
4. Once removed, is the item capable of being used again?
Generally speaking, if an item is to be removed prior to the end of the term and meets the above criteria then it is likely to be deemed to be a tenant fixture which is permitted to be removed.
If there is no question of the degree of annexation to the property, the item will be a chattel which a tenant is obliged to remove at the end of the term.
By way of an example, a recent Court of Appeal case determined that a regulator and two transformers, with a combined weight of 250 tonnes, were chattels as they rested on their own weight and were not attached to the land. A crane running freely on rails, which could be removed in tact off its track, was also a chattel. However, a petrol pump bolted to a concrete base has been determined to be a fixture.
Q: What does the lease state?
The position as set out in the lease should be considered in every event, as well as any ancillary documents such as a licence for alterations. If a landlord wishes to prevent a tenant from removing its fixtures, as there may be value in those items, then the lease should expressly disallow the removal.
Q: Were the items installed under a previous lease?
Unless the “new” lease contains an express obligation for the tenant to remove any fixtures which were installed under the old lease then, upon renewal, the fixtures will have become part of the land and therefore the ownership of the landlord.
In such circumstances, a landlord cannot force a tenant to remove the fixtures. It is therefore important for a landlord who may require an item to be removed at the end of the term to make sure the new lease contains an express provision to do so.
Although we have set out a number of criteria which courts will review in determining whether there is an obligation upon a tenant to remove a fixture or whether it has become annexed to the land so that it has become the property of the landlord, the actual analysis which is undertaken goes into far more depth and often requires expert evidence.
The issue of whether tenant’s fixtures are fixtures which annex to the land or chattels which can be removed is particularly important if the tenant is exercising a break right in its lease and a condition of the break right operating successfully is that the tenant delivers vacant possession of the property on the break date.
If a tenant, in this situation, leaves heavy plant and machinery in situ, believing it to have annexed to the land but a landlord later disputes that the items were not fixtures but chattels, then this could have serious consequences for a tenant as, if the landlord is correct, vacant possession won’t have been given and the lease will continue.
If either party will not accept the position then the parties will have to go to court to determine whether the items in question are fixtures or chattels. If the items are deemed to be fixtures then the landlord may have an issue in re-letting the property or it will have to spend money getting rid of the plant.
If the items aren't deemed to be fixtures but chattels then the break right will have failed and the lease will continue and the tenant will remain liable for rent and other payments under the lease until the end of the term, which could be considerable.
On the other hand, there may be value in the fixtures which the landlord wishes to retain but a tenant wishes to remove.
Overall, both landlords and tenants in the manufacturing industry are advised to be wary when it comes to heavy plant and machinery and its status as a chattel or fixture. Any intentions in relation to such items should clearly be set out in the lease.