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More chatter about chattels

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18/12/2015


Two recent cases [1] have again resurrected the age-old debate as to the distinction between chattels (or fittings) and fixtures, which, as we commented in our previous article “When is a wall not a wall”  is a topic that kept property owners, lawyers and the judiciary deliberating for many years. Whilst neither of these cases introduces any new concepts, they do provide a useful reminder of the law and how the court reaches a decision on whether an object is a chattel.

The law

Whilst our previous article provided a detailed discussion as to the distinctions between chattels and fixtures it is worth setting out briefly how the court has approached decisions on the subject.

Case law has led to the development of two tests to deduce the nature of an item brought on to land, the first of which considers to what extent an item becomes ‘annexed’ to the land and by what method, the second, the purpose for which that annexation occurs. These two tests have however, resulted in some confusing decisions from the courts. If something is affixed to the land, even slightly, then the presumption is that it is a fixture [2]. However, regardless of whether a structure is affixed to the land, if it cannot be removed from land without being demolished or significant damage being caused by its removal, the conclusion to be drawn is that it is a fixture [3]. If an item has been affixed (or is even merely resting on the land anchored by its own weight) with a view to effecting an improvement to the land then the likelihood is that it is a fixture [4]. However if an item is affixed to land to facilitate enjoyment of the item itself then it will remain a chattel [5] despite, in some cases, a high degree of physical annexation.

There is also a third category of items to be considered, these being ‘tenant’s fixtures’, which are chattels brought on and affixed to the land by a tenant for the purpose of its trade or business and which are capable of removal without causing substantial damage and without rendering the item useless as a result. Such items may be removed during a tenant during the lease term, but become the landlord’s property at the end of the term. When deciding if such items meet criteria as to removability the courts will consider a number of points, including the physical nature of the item, whether it can be severed from the land and how difficult it would be to do so, the effect of severance on the premises and the item itself and whether damage caused is remediable. The size of an item and complexity of removal does not necessarily mean that an item is not a removable tenant’s fixture provided that it remains (or reverts following reassembly) to its useful status following removal. Using these tests it has been held that items that would take up to 18 months to remove at a cost in the region of £3 – £4 million and require specialist removers were removable tenant’s fixtures [6].

Two new cases

From the discussion above it can be seen that the law in this area is a best complex and at worst perhaps a little confused. Two new cases have now been decided which, whilst they may not necessarily provide any additional clarification of the law in this area, at least serve to provide interesting examples of how the law in the area is applied by the courts.

The first of these two cases [7] required the court to decide whether a chalet had become part of the land on which it was situated. In this case, the owner of land used as a naturist resort granted a tenancy of a plot of land on which there had been constructed, by a previous tenant, a chalet. Both the landlord and tenant believed the chalet belonged to the tenant. The tenant carried out extensive renovations to the chalet; however, following a disagreement, the landlord served a notice to quit on the tenant. The case turned on whether the chalet formed part of the plot of land and was it was a fixture not a chattel as if it did the notice served by the landlord would not be valid.

The tenant won the case at first instance and was also successful at the subsequent appeal in which the Court of Appeal, referring to established case law, confirmed that whether a structure could be removed from land without being destroyed was of the utmost importance. If not then the structure could not have been intended to remain a chattel and must have been intended to become part of the land. As, according to expert evidence, the chalet could not be removed without being demolished and furthermore it had been placed on the land to allow the original tenants to better enjoy the amenity of their plot, it was inevitable that the chalet was found to be a fixture. Furthermore the parties’ subjective belief that the chalet was a chattel belonging to the tenant was irrelevant.

In the second case on this subject, the court had to determine whether an external mural attributed to the street artist Banksy, formed part of the fabric of the building on to which it was painted. In September 2014, a piece of artwork was spray-painted onto the external wall of a building used, by the tenant, as an amusement arcade. Later the same year the tenant removed the section of wall onto which the artwork was sprayed and made good the damage. They subsequently shipped the artwork to New York for sale.

The tenant alleged that it was acting in accordance with the repairing obligations in its lease which obliged them to keep the premises in good and substantial repair and condition and that once removed, the artwork became theirs (pursuant to an implied term in the lease). The landlord assigned their interest in the claim and the claimant then brought a claim for summary judgment. The claimant argued that despite the demise of the lease including the structure and exterior of the building, the building formed part of the land that belonged to the landlord and once sprayed on to the wall, the artwork also became part of the land. Once removed the artwork was a chattel belonging to the landlord (and subsequently therefore, the claimant).

The court held that the argument that the artwork constituted disrepair had a real chance of success and as such could be dealt with in one of three ways. It could be painted over, it could be removed by chemical cleaning or the section of wall could be replaced. The tenant was only required to undertake such remedial work as was required, using such methods as a sensible tenant would adopt. As such, the latter of the options for repair was not objectively reasonable as a means of complying with the repairing covenant in the lease. With regard to the ownership of the section of wall once removed, it is established land law that in the absence of a contrary intention, every part of a leased property belongs to the landlord and the tenant’s interest is limited and defined by the terms of the lease. As such, in the absence of any agreement to the contrary, the artwork became part of the building itself and therefore belonged to the landlord. The court also commented that the value of the artwork should be taken into consideration and that even if it might be possible to argue that chattels of little value belonged to the tenant, it is not necessarily the case that such an argument would apply to valuable items. As such the landlord had the right to release any profit to be made from selling the artwork.

WM Comment

Despite not making any new law, these cases provide a useful reminder of how the court applies the principles of annexation. Whether or not an object is a chattel or a fixture is a question of fact to be determined using the principles established by case law. Consideration should be given not only to the method and degree of annexation, the purpose for which that annexation occurred and the consequences of its removal but also the provisions of the lease governing the relationship between the parties. Whilst these two cases are very specific to their own, some might say, quite unusual facts, the determination of whether an item is a fixture or a chattel is relevant to many situations, including dilapidations claims, whether a tenant is entitled to remove an item at the expiry of its lease, if an item forms part of a lender’s security and also what exactly passes to a buyer on a property sale. As such, these two cases add some helpful examples to assist in determining what exactly has become part of the land and what remains merely a chattel.

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[1] Spielplatz Limited v Pearson and another [2015] EWCA Civ 804 and The Creative Foundation v Dreamland Leisure Ltd and others [2015] EWCH 2556 (Ch).
[2] Holland v Hodgson [1872] L.R. 7 C.P 328
[3] Elitestone v Morris [1997] UKHL 15
[4] Pole Carew v Western Counties General Manure Co [1920] 2 Ch 97 CA
[5] Botham v TSB [1996] EGCS 149.
[6] Peel Land and Property (Ports No.3) Ltd v TS Sheerness Steel Ltd [2014] EWCA Civ 100
[7] Spielplatz Limited v Pearson and another [2015] EWCA Civ 804