Fixtures and fittings in a leased property may belong either to the landlord or the tenant. It is important to know the distinction because it affects the following questions: –
- Which items can a tenant remove at the end of a lease?
- Which items must the tenant repair?
- Who should insure the items in question?
The recent case of Peel Land and Property (Ports No. 3) Limited v TS Sheerness Steel Limited shows that a tenant may be able to remove very substantial plant and equipment from the premises and even buildings themselves.
In this case, a lease was granted in 1971 for 125 years for the erection of the Sheerness Steelworks in Kent. The lease obliged the tenant to build and equip the steelworks so it was capable of producing 50,000 tonnes of steel a year and the tenant duly did so. The works carried out by the tenant were substantial, comprising furnaces, cranes, water coolers, fume treatment machines, transformers and numerous other items of plant and associated pipework.
The question arose as to whether the tenant could remove and sell the very valuable plant and equipment. The landlord argued that the tenant could not do so because of the terms of the lease and also because of the extremely substantial nature of the plant and equipment and the way it formed part of the building.
The court held that it was necessary to consider for each item:-
- Was the item physically annexed to the buildings (so that it had become part of those buildings)?
- Had the item been installed for the purpose of the tenant’s trade?
- Could the item be physically removed and, if so, with what degree of difficulty?
- What would be the effect of removal of the item on the buildings (would either be seriously damaged)?
- Whether the item could be reused if it was removed?
- Did the terms of the lease override any right of the tenant to remove the item?
Applying these criteria, the judge held that most of the plant and equipment was removable even though it would cost approximately £3 million to remove the items and take up to 18 months to do so. The case involved numerous items but, for example:-
- The tenant was entitled to remove the following items as they were chattels (personal property) rather than fixtures and fittings: –
- A regulator weighing 50 tonnes and two transformers each weighing 100 tonnes as they rested on the land by their own weight and were not annexed to the land; and
- A crane running freely on rails which could be removed intact vertically off its track.
- The tenant was entitled to remove the following fixtures and fittings (as they could be removed without damage to themselves, without losing their essential utility and without damage to the remainder of the property):-
- A furnace weighing 195 tonnes and associated fixed plant (but not the mezzanine floor on which it rested); and
- Fume treatment plants and dust collection systems weighing 1000 tonnes including steel framed buildings which could be unbolted.
- It was however held that a gas fixed furnace consisting of a steel framed brick structure fixed to the floor with a basement underneath was not removable by the tenant as it would be substantially destroyed in the process of removal.
The judge also stressed that, if the landlord wanted to restrict the tenant’s right to remove fixtures and fittings at the end of the term, the lease must state this in clear terms.
The moral for both landlords and tenants is that the lease should clearly state which items are landlord’s fixtures and fittings and which belong to the tenant. Surprisingly most commercial leases say very little about this.
This is particularly important where, as in this case, the tenant is equipping the premises or the premises are slightly out of the ordinary (e.g. telecoms masts and wind turbines).
For more information please give Eleanor Rattay a call on 0116 281 6224.