Emma Humphreys looks at two recent cases – one involving a Banksy and the other a Henry Moore – and asks whether art should be catered for specifically within a lease?
There was a time when artwork affixed or painted onto a building might simply have formed part of a landlord’s dilapidations claim, on the basis that the tenant should have removed the item before vacating the property. These days, it seems more likely that a tenant might try to reduce its landlord’s dilapidations claim to reflect the value of any such artistic item – particularly if it happens to be a Banksy mural.
An artistic duo
The recent decision about the mural in The Creative Foundation v Dreamland Leisure Ltd [2015] EWHC 2556 (Ch); [2015] PLSCS 263 has highlighted both the value of such artwork and the issues of ownership that can arise. Readers are probably already familiar with the case (see Legal notes, EG 17 October 2015, p89) and will be aware that it focused on the term to be implied into the lease about what should happen to parts of the building that needed to be replaced or otherwise removed by the tenant when complying with its repairing obligations.
The parties in that case agreed that the relevant building part – namely the wall containing the mural – constituted a chattel once removed. However, such conclusions may not always be so easily reached when it comes to artwork.
The classification of an item of art as a chattel or fixture may be particularly difficult where it consists of a sculpture. This point was examined in another case earlier this year, which addressed the ownership of art: London Borough of Tower Hamlets v Bromley London Borough Council [2015] EWHC 1954 (Ch); [2015] PLSCS 211. Here, the piece in question was a sculpture by Henry Moore known as “Draped Seated Woman”, and later christened by the residents of the flats surrounding it as “Old Flo”.
Old Flo had been purchased by the London county council in 1962 and installed in a residential area in Tower Hamlets – in the open space between some tower blocks – as part of an initiative to improve Londoners’ lives and living standards.
Before the judge examined the history of dealings with the sculpture which led to the claim of ownership raised by the London Borough of Bromley, he reviewed the question of whether the item should be classified as a chattel or fixture of the land. In reaching his decision, he used the conventional test of looking at the factual situation in order to examine: (a) the method and degree of annexation between the sculpture and the land; and (b) the object and purpose of annexation. He also noted the comment of Lord Lloyd in Elitestone Ltd v Morris [1997] 2 EGLR 115 that:
“Many different tests have been suggested, such as whether the object which has been fixed to the property has been so fixed for the better enjoyment of the object as a chattel, or whether it has been fixed with a view to effecting a permanent improvement of the freehold.”
The factual circumstances of the annexation of Old Flo were that the sculpture had originally been situated on a plinth that was in turn placed on a concrete slab built into a raised grass mound. The judge felt that, despite this level of affixation, the sculpture had remained a chattel throughout and had never formed part of the land.
In reaching this conclusion, he noted that the sculpture was an entire object in itself, which could be (and had been) removed without damage. (In fact, the council had loaned the sculpture to Yorkshire Sculpture Park for 18 years.) He also took the view that Old Flo was not an integral part of the design of the residential estate where it had been installed and, while it must have been intended to confer some benefits on the residents, it conferred equal benefits on anyone passing by. The judge commented that Old Flo “might adorn or beautify a location, but it was not in any real sense dependent upon that location”.
This designation of the sculpture as a chattel eventually supported the court’s conclusion that the sculpture had belonged to London Borough of Bromley through various reorganisations of local government through the years. However, its claim to ownership was defeated by the fact that Tower Hamlets had excluded Bromley from use and possession of the sculpture and had converted the artwork to its own use. Unfortunately for Bromley, it was too late to recover possession of the sculpture because of the six-year limitation period imposed by section 2 of the Limitation Act 1980.
These circumstances in which ownership of Old Flo transferred to Tower Hamlets were very fact-specific. Similarly, the appearance of a highly valuable mural on a building remains relatively unusual. However, the opportunity to gain from the potential financial value of such artwork means that a wider point must inevitably be considered: do landlords (and tenants) need to give some thought in advance to clarifying the ownership of – and responsibilities towards – artwork that ends up being attached to or painted onto their buildings?
What’s next for leases?
Creative Foundation arose because of the normal silence within the lease about who should own any parts of the building that are removed. However, including an express lease provision to cover this point – rather than relying on the court to imply an appropriate term – would not necessarily have resulted in a clearer path for the landlord to obtain the windfall it managed to secure from the judge in the case.
In particular, it is interesting to contemplate what might have happened if the inclusion of a lease term giving clarity about the ownership of items removed from the premises had prompted the tenant to leave the wall containing the Banksy mural in place rather than extracting it. Could the tenant have then tried to use the value of the mural (estimated to be somewhere between £300,000 – £470,000) to try to negotiate a reduction in any terminal dilapidations claim or otherwise obtained some financial benefit from it?
While a straightforward argument based on the value of the premises returned to the landlord at the end of the tenancy seems likely to face difficulty, a well-advised tenant might have considered a more creative approach. For example, the decision in Creative Foundation makes it far from certain that the landlord of Dreamland’s premises in Folkestone would have been able to prevent the tenant from repairing the wall containing the mural.
The judge in Creative Foundation accepted that the tenant had a real prospect of success in showing that the mural should be treated as graffiti – albeit that he was only “narrowly persuaded” and that the hearing was only a summary judgment application. He indicated that if the mural had remained part of the building – rather than the wall being removed – the tenant could have opted to paint over or chemically remove it.
It is easy to imagine how the landlord might have responded to any suggestion from the tenant that it intended to comply with its lease repairing obligations by removing the Banksy mural – but it is difficult to know whether a court would have been willing to imply a term obliging the tenant to preserve such additional value unexpectedly acquired by the building.
Landlords who would prefer to avoid such uncertainty and to protect their ability to take advantage of any unexpected art windfall may try to include appropriate protections in their leases to clarify the ownership of relevant artwork and/or ensure that its value is preserved. However, it is always difficult to foresee the unexpected consequences that might arise from adding to the potential scenarios covered by leases. A more sensible approach might simply be to accept the reality that such windfalls rarely arise and that the courts appear to have dealt with them adequately so far.
Emma Humphreys is a partner at Charles Russell Speechlys
