Peel Land and Property (Ports No.3) Limited v Sheerness Steel Limited, decided in June, considers the classification of chattels and fixtures and the tricky distinction between those fixtures a tenant may and may not remove at the end of its lease.
The decision is a practical reminder of the importance of deciding, at the outset of a lease, which of the tenant's fixtures should remain in place and which may be removed at the end of the term.
In Peel, the lease was granted in 1971 for a term of 125 years. The lease required the tenant to build a fully equipped steel-making plant and rolling mill, capable of producing at least 50,000 tonnes of steel a year. Removal of the plant by the tenant would be extremely complicated. It was estimated that the most significant items would take 12-18 months to remove, at a likely cost of £3-4m.
The case came to court because the landlord and tenant disagreed over whether the tenant was entitled to remove the plant - the landlord argued that the tenant had no right to do so. In total, the removal of 126 items of plant were listed and in dispute.
The court considered a number of questions addressing these issues:
Were any of the disputed items of plant chattels rather than fixtures?
Initially, the court considered whether any of the items in dispute were chattels rather than fixtures. In relation to each item this had to be decided according to the degree and purpose of its annexation to the land.
Several of the items were considered to be chattels because the items essentially rested freely on their own weight. This included some of the cranes there, because they were not fixed to the land and could be lifted intact from their track.
In relation to the fixtures, did they meet the established criteria as to removability?
The remaining items were considered to be fixtures. In deciding whether the tenant could remove these items, the court considered the extent to which they were physically removable from the property and the effects of their severance.
For instance, a gas-fired furnace was classed as non-removable because it would have been substantially destroyed in the process of removal and because it provided a roof for the basement below, which suggested it should be regarded as being part of the building itself.
Those items that could be removed without damage to the plant itself, without losing their essential utility and without damaging the remainder of the property, were deemed to be removable tenant's fixtures and fittings.
If an item would otherwise be a removable tenant's fixture, did the lease terms override the tenant's right of removal?
In Peel, there was not. The landlord argued that the tenant was under an obligation to install the plant and this indicated that it was not entitled to remove it. However, the lease did not make this clear.
. The outcome of the case was that the tenant was entitled to remove all items classified as chattels or removable tenant's fixtures.
. The distinction between chattels and fixtures is not always clear and tenant's fixtures may or may not be removable.
. A tenant has a general right to remove all chattels and removable fixtures from a property at the end of its lease term.
. The parties to a lease can agree to modify or exclude this right, but the language used to do so must be clear. If there is any uncertainty, the ordinary right of the tenant to remove trade fixtures will not be affected.