Fixture issues in commercial leased properties

Why is it important to distinguish, what is a chattel and what is a fixture, and who does it belong to?

Most leases link the maintenance of fixtures (whether or not existing at the time of grant of the lease) with the maintenance of the building, so from an ongoing repair obligation it is important to know what the item is classified as. Leases are less concerned with chattels.

The majority of issues however arise at end of the lease term when the tenant is handing the property back to the landlord. Leases commonly provide for the condition and handing back (yielding up) of the building including landlords fixtures, typically requiring the same to be handed back in good repair. Problems can occur when tenants wish to take the fixtures they have installed to their next premises or when they are happy to leave the fixtures but not have to repair them.

How to determine whether an asset is a chattel or a fixture?

There are two clear ways to determine whether an asset is a chattel or a fixture:

1. The object and purpose of annexation- This is when the courts note the purpose of the asset. If the object is intended to be permanent and improve the property then it is a fixture. However, if the attachment is only temporary, the asset remains a chattel.
2. The method and degree of annexation- This is when the court looks at the damage the removal of the asset would cause to the property. If an asset was to be removed and cause serious damage to the property, it is most likely a fixture.

What are the different types of fixtures?

There are two different types of fixtures, a tenant’s fixture and a landlord’s fixture.

1. A landlord’s fixture is usually a non material part of the property which is present from the start of the lease.
2. A tenant’s fixture is an asset that has been installed by the tenant and can be removed by the tenant, either during or at the end of a lease. The fixture has to be removed in the time specified by the lease, otherwise, if it is not removed within this period, the tenant is assumed to have abandoned the fixture and it then becomes the landlord’s property. Fixtures added by tenant typically include, alarm systems, air conditioning, trade racking, counters, security shutters, awnings etc. 

How does the court decide who the fixture belongs to?

The following points have been mentioned in cases surrounding fixtures, and may useful application to most fixture cases:

• The term of a lease can over-ride the general law. A lease should be worded clearly on which items can be removed by the tenant at the end of the contract. 
• A tenant’s fixture must be capable of removal without losing its essential utility and without causing serious damage to the property, it has been held that it is sufficient that any damage caused could be repaired.
• The courts are more likely to be concerned with the condition of what remains rather than the function. This means that a tenant can remove an asset regardless if it was going to make the remainder inoperable.
• Under the law, it doesn’t matter how difficult the fixture is to remove, this does not rule it out from being a tenant fixture.
• A fixture is not necessarily owned by the person who has paid for and fitted it
• It is of no importance if the fixture has any value or can be reused.
• If a judge rules that a fixture is the tenant’s property, the judge can instruct that any damage caused from the removal of this asset, should be repaired by the tenant.

For anyone entering into a new lease, or looking to carry out or approve improvements to leasehold property, it is important that they  fully understand the clauses relating to fixtures and discuss any crucial changes. Legal advisers should also be consulted prior to entering into legal commitments to help overcome any complications.