12 July 2013

Take it away, boys: fixtures are not part of land

The message: a tenant can remove substantial plant and equipment from premises.

The case: In an important case for tenants who cease to trade, the court has clarified the law with regard the removal of fixtures and fittings, in Peel Land & Property (Ports No 3) vs TS Sheerness Steel (14.06.13).

In 1971 a 25-year lease was granted to erect the Sheerness steelworks in Kent. The tenant was liable to build and equip the steelworks, so it was capable of producing at least 50,000 tons of steel products each year, and it duly did so. The plant is substantial ­ — comprising furnaces, cranes, water coolers, fume treatment machines, transformers and other substantial machinery and associated pipework and ductwork.

In 2012, the steelworks ceased trading, the business was sold and the lease assigned to the current tenant. An issue arose as to whether, if manufacturing did not recommence, the tenant could remove and sell the valuable plant and equipment. The landlord argued it could not, because of the terms of the lease, the substantial nature of the plant and equipment and the way it formed part of the building. It argued the machinery formed part of the land and belonged to it, even though it had been installed by the previous tenant.

The judge reviewed the law governing removal of fixtures installed by a tenant. Essentially, all pieces of plant and equipment are a tenant’s chattels to begin with, but when they become part of the structure or fabric of a building they become fixtures and the question is whether they are the landlord or tenant’s fixtures.

The judge held it was necessary to consider the physical extent of each item and whether it was installed for the tenant’s trade and could be removed without substantial difficulty or serious damage to the item or premises. If an item could be satisfactorily removed, even if it was extremely complex or bulky, it was a tenant’s fixture. Accordingly, even a pre-fabricated building assembled on site could be a tenant’s fixture.

Applying these criteria, the judge held that most of the plant and equipment was removable. Items such as cranes could be unbolted or cut free without causing substantial damage to the building — the fact that this would take time and involve millions of pounds was irrelevant. Furnaces were also removable, despite being fixed to the concrete floor. However, one particular furnace was not removable, as it was too integrated into the building and would be destroyed in the process.

The judge did not think the terms of the lease affected the position. The law permits removal of a tenant’s fixtures, even if they were installed pursuant to an obligation under the lease. Clear words to the contrary would be needed, if a tenant was not permitted to do this. The judge did not think the tenant’s commercial intention had been to fully equip the building for the benefit of the landlord, as if the premises had been let on that basis.

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