The tests used to distinguish chattels from fixtures, and fixtures that are removable from those that are not, were laid down in cases dating back to the 19th century. These provide many illustrations of how the tests should be applied. However, there are fewer such examples in the 20th or 21st centuries. The recent case of Peel Land and Property (Ports No 3) Ltd v TS Sheerness Steel Ltd [2013] EWHC 1658 (Ch); [2013] PLSCS 139 will give the textbooks a more contemporary feel.
The case concerned the Sheerness Steel Works in Kent, which were let to Sheerness Iron & Steel Ltd for a term of 125 years in 1971. The lease obliged the tenant to erect and equip a substantial steelmaking plant and rolling mill and to yield up the premises at the end of the term, together with any additions and improvements “and all fixtures and fittings of every kind in or upon the said premises… except tenant’s or trade fixtures”.
TS Sheerness Steel Ltd took an assignment of the lease in 2012 and decided to sell the contents. The landlord claimed legal and beneficial ownership of the plant and machinery and sought an order restraining the tenant from selling or removing it from the property.
The items in dispute were extremely bulky. They comprised furnaces, tundishes, casting machines, mills, regulators, transformers, water cooling equipment and towers, fume treatment systems, dust extraction systems and collection houses, cranes, tracks and weighbridges. The parties agreed that it would take six to eight weeks to prepare an estimate and sequence the engineering work required to remove some of the items, given their size and the complexity of the necessary work. They also agreed that it would take 12-18 months to remove certain items, at a cost running to millions of pounds.
The landlord tried to persuade the court to approach the case in the way that it would have done had the landlord constructed and equipped the steel works itself. Alternatively, it claimed that the equipment had become an integral part of the works and relied on the tenant’s covenant not to alter the premises except in connection with its use for an industrial purpose approved by the landlord. However, the tenant’s argument that most of the items were either chattels, or tenant’s or trade fixtures, carried the day.
Classifying objects brought onto land
Objects brought on to land fall into one of three categories; they may be chattels, fixtures, or may become part of the land itself. Items that fall into this last group are things that have become an integral and essential part of the land, such as windows and doors.
Chattels can be easily removed, without damage to themselves or to the fabric of the property, and are generally fixed to property temporarily to be enjoyed as chattels, and not as permanent improvements. They remain the property of tenants, who can deal with them as they please.
A fixture is something that used to be a chattel, before it became annexed to land. It may either be a landlord’s fixture, which must be left behind at the end of a lease, or a tenant’s or trade fixture. Fixtures belonging to the landlord, which are included in the demise, must not be removed by the tenant (even if the tenant has to replace them during the term).
Tenant’s or trade fixtures comprise items that the tenant has attached to the property for the purposes of its trade, or as ornaments for convenience, which can be removed without being seriously damaged or losing their essential character and utility, and without causing substantial damage to the fabric or structure of the property. Tenants are entitled to remove fixtures in this category, unless their lease expressly prohibits them from doing so (but need not do so, unless their lease states otherwise).
Annexation
The legal test as to the removability of fixtures does not turn on the value of the items, which may fluctuate, or on their age or obsolescence. It depends on the degree of annexation and on the purposes for which they have been affixed to land.
The courts used to attach great importance to the extent to which articles have been annexed to land. However, judges are now more concerned with the reason for the annexation. If a chattel has been affixed to land for a temporary purpose, to facilitate its enjoyment as a chattel, and not with a view to effecting a permanent improvement, then it will not normally be held to have become part of the land. The judge noted that, when considering any damage caused by the severance of a fixture, the court must take into account the tenant’s obligation to make good any consequential damage to the premises, and commented that technology today is such that the second test may prove decisive.
The judge also accepted that one article may, if it is an essential component, form part of another. Consequently, the interconnected functions of plant and machinery may be relevant when assessing whether they should be regarded as composite or separate items. However, the court must focus on the essential character and utility of what is to be removed, not of what remains.
As regards what will stay put, the court must consider its physical condition and ask whether there would be any substantial irreparable damage, rather than focusing on its ability to function on its own without the item(s) to be removed. Finally, if an item qualifies as a tenant’s or trade fixture, the court must then look at whether the tenancy agreement prohibits the tenant from removing it.
The outcome
The judge applied these tests and concluded that most of the items in dispute were tenant’s or trade fixtures or chattels, even though their removal would, in some cases, deprive parts of the steel works of their functionality or render their operation unlawful.
The judge also held that the fact that the tenant had covenanted to construct and equip the steel works did not mean that the plant and machinery belonged to the landlord. Finally, clear words are required to override a tenant’s right to remove tenant’s or trade fixtures whenever it chooses and the prohibition against alterations in the lease was insufficiently clear to do so when read in the context of the lease as a whole (especially as the tenant was not under any obligation to yield up tenant’s and trade fixtures at the end of the term).
Allyson Colby is a property law consultant
