It is important for Tenants of a commercial lease to understand who will own any items they install in the premises, and their obligations in respect of such items on the termination of their lease. This is particularly important with industrial leases and items of significant value. What can a Tenant do to protect their assets?
The agreed test for determining whether an item is a chattel or a fixture (and therefore part of the land) is twofold. The Courts will consider the degree of annexation of the chattel to the land, and the purpose of annexation.
In the context of items installed by a Tenant under a lease, the test is modified slightly. The Courts will consider the following questions when deciding whether an item has retained its status as a chattel (and as such whether the Tenant has retained ownership of it):
1. Is the item annexed to the land?
2. If so, is it annexed for use as part of the Tenant’s business? Is it ornamental?
3. Is the item able to be removed without significantly damaging the land?
4. Is the item able to be reused after removal?
If the answers to the above questions are yes, the item is likely to be considered a chattel. It is clear however that these questions allow room for argument between the Landlord and Tenant. Ideally, and to avoid this, the language of your Lease will be clear. Your lease should have clear provisions setting out:
1. The definition of the ‘property’ being leased;
2. Details of your alterations and fittings;
3. Ownership of your chattels and fittings during the lease and upon termination; and
4. Your repair obligation upon termination.
If you require any assistance on interpreting or reviewing your lease, please get in touch.