When can a Landlord keep fixtures installed by the tenant after a lease expires?

Questions about fixtures in your rental property?
Contact us +61 2 9267 9800 or %9A%9F%AB%DB%C0%C8%BA%E4%93%AB%CC%9B%B9%B1%BD%A8%9D%93%A4%C9%BF%99%AF%D8%82

Issues regarding fixtures, that also apply in the simplest of leases, arose in a case involving a large industrial plant.

Natural Fuels built a large biodiesel plant on land it subleased from Vopak. The plant included buildings, cooling towers, pipework, distillation columns and underground tanks and cost over $80 million.

Lease provision dealing with fixtures:
Clause 13.1 of the sublease provided that on or before the Termination Date Natural Fuels was to, at its cost, remove from the Premises its “Property (including but not limited to all facilities associated with the installation of the Biodiesel Plant)”.
Clause 13.2 of the sublease provided, that if Natural Fuels did not remove its Property within three months of the Termination Date Vopak could:

•  remove Natural Fuels’ Property and dispose of it at the cost and the risk of Natural Fuels, or
• deal with Natural Fuels’ Property as if it were the property of Vopak.

Termination of the lease

The lease was terminated after Natural Fuels went into Administration, and Vopak reminded Natural Fuels’ Administrator that the fixtures were to be removed within three months of the Termination Date in accordance with the lease. Vopak gave the Administrator some extensions of time to sell the fixtures, but those extensions ran out. Vopak then applied to the court for a declaration that it had the right to deal with Natural Fuels’ Property as if it were Vopak’s property.

Right to remove fixtures

The law makes it clear that a tenant is entitled to remove its fixtures from the property. Fixtures are those things that the tenant has attached to the land. Fixtures include buildings and things attached to buildings. The tenant’s right to remove its fixtures is generally included in all leases.

There has been some discussion by courts as to whether the tenant’s fixtures become part of the land, that is belong to the landlord as part of its land while they are fixed to the land, or whether they remain separate objects belonging to the tenant that just happen to be attached to the land. If they remain separate objects the law relating to removal of fixtures would not apply.

Decision

In considering Vopak’s application for a declaration that it could deal with Natural Fuels’ Property as if it were its own property the Court said:

1. Anything fixed to the land becomes part of the land, and remains part of the land until it is detached from the land.
    
2. The tenant’s right to detach a fixture is an exception to its obligation to deliver up to the landlord everything that has become part of the land.

As Natural Fuels did not remove the fixtures within the time provided in the sublease (as extended by agreement) it ceased to be entitled to remove them and was therefore not entitled to interfere with their sale by Vopak.

Comments

Because a tenant has a right to remove fixtures, the lease should include a provision setting out the basis on which the tenant would lose that right. In this case the lease said that the tenant would lose the right to remove its fixtures three months after termination. The court enforced that provision.

Shopping centre leases commonly include a provision that a shopfront installed by the tenant is to be left in the premises at the end of the lease. If there are any other special requirements regarding fixtures which are related to the particular premises or the tenant’s use of the premises, they should be included in the lease.

Note that this case does not deal with any tenant’s property that is not a fixture. In NSW the Uncollected Goods Act 1995 provides a mechanism by which goods that are left on leased premises can be disposed of. This can be a significant problem where the goods are of a perishable nature and will melt or rot or otherwise go off if nothing is done quickly. The Act applies if there is no agreement between the parties on the means of disposal of the goods. If there is no such agreement, the Act applies to any aspect of the disposal of those goods that is not dealt with in the agreement. So, unless there is a provision in the lease that deals with the removal of goods, a landlord may have to follow the procedures in the Act which include applying to the Local Court for an order regarding disposal.

What landlords need to do

Landlords should check their leases to make sure that they cover the removal of fixtures and the disposal of goods.
 

What tenants need to do

Make sure that you understand what is in your lease and comply with its terms if you need to remove fixtures and goods after the lease expires. Don’t be caught out like Natural Fuels and lose the right to sell valuable fixtures at the end of the lease.

If you are entering into a new lease, check the clauses dealing with fixtures and goods carefully and negotiate any necessary changes. It may mean that, because of the type of fixtures that you intend to attach to the premises, you will need more than the time given in the lease to remove them if the lease comes to an end. In the Natural Fuels case the lease was terminated after an administrator was appointed. This is not an event that Natural Fuels would have been able to prepare for, and even three months was not long enough for it to remove or sell the fixtures.

Please note that this newsletter does not contain legal advice. You should always obtain your own legal advice based on the particular circumstances of your case.

For any information about anything in this newsletter please contact +61 2 9267 9800:
Garry Pritchard (%9Az%AB%D6%B9%DCv%C1%C5%AF%D3%95%B5%AC%C0%9Ay%CA%AE%C3%BE%D1%BD%D5%C6%83%AF%DC%B7%94%AE%E9%82).
© Emil Ford Lawyers
A member of the Southern Cross Legal Alliance with associated firms throughout Australia and New Zealand.
Liability limited by a scheme approved under Professional Standards Legislation.