Brief Fact Summary. This case involves a dispute as to whether certain fixtures placed by a tenant on a leased premises may be removed, or if the fixtures become the property of the landlord.
Synopsis of Rule of Law. Trade fixtures are removable by the tenant so long as he remains in possession of the leasehold, provided they are removable without material damage to the premises, regardless of whether the tenant has preserved such a right in the lease.
Points of Law - Legal Principles in this Case for Law Students.
So today it is the general rule, in the absence of an agreement to the contrary, that a tenant may remove whatever he has erected or installed for the purpose of carrying on trade, usually referred to as trade fixtures, provided they can be severed from the freehold without material injury thereto, and that such removal is effected before he yields possession of the premises.
Facts. In 1929, parents leased a five story brick building to their son, Fred Horns, who intended to operate a meat packing business therein. The lease was to begin September 1, 1929 and continue until six months after the last surviving parent died. The lease gave Fred the right to install a new front to the building and to alter the interior for use as a meat packing and sales business. Fred covenanted to keep the building “in as good and sufficient repair as it is the date of the execution hereof” [September 1, 1929]. At the end of the term, Fred covenanted to deliver the premises and its fixtures in as good a condition, minus regular depreciation, as the date of the execution hereof, or September 1, 1929. Fred was given the option to purchase the premises at any time prior to the end of the lease with $75,000, which he did not exercise. Fred installed a large refrigeration system in the building such that each floor above the first was entirely a cold storage facility with meat r acks running to an elevator. The additions by Fred cost $89,000. Augusta Horns, Fred’s last surviving parent died on October 11, 1937, and by her will devised the premises to her three children, Hulda Muller, now deceased [her interests have passed to Hazel Handler, Plaintiff, Handler being Mullers only child], Fred Horns, tenant in possession, and Clara Horns. The three children became tenants in common. Six months after his mother’s death Fred had not exercised his option to purchase and the lease expired. Fred remained in possession as a hold over tenant and then in April of 1939, the corporation Fred formed to maintain his business [later Fred Horns & Son] entered into a lease with the then owners of the premises [which was himself, and his sisters] for a term of two years with an option to renew for another three years. That lease provided that no alterations, additions or improvements was to be made without the consent of the landlords, and that all additions would belong to the landlords. The tenant was given the right to remove any and all trade fixtures that belong to tenant or which had been installed by tenant except those that are so fixed as to become part of the building such that their removal could not be accomplished without causing material damage to the premises. When the term of this lease expired the parties went on year to year. Fred died in 1945 and left the business, including any fixtures, to his son, Defendant Henry Horns. Hazel Handler, Plaintiff, who owns an undivided one-third of the building sued for partition. Plaintiff claims that all the improvements made by Fred to the building became part of the building and may not be removed from the building. The case was referred to a special master who reported that the premises could not be partitioned but should be sold as one parcel and that the fixtures placed by Defendant had become part of the building. The Vice Chancellor found that the tenant intended to make the fixtures become part of the real estate and that it constituted one single business entity. Defendant appealed.
Issue. May the tenant in possession remove the trade fixtures?
Held. Yes. So long as the removal does not cause damage to the premises. Case remanded for a determination of what may be removed. The ancient rule was that whatever is fixed to the realty becomes a part of the realty and may not be removed. In order to encourage trade and industry, this ancient rule has been subjected to exceptions for fixtures placed in premises for business purposes. The public policy is such that the widest possible latitude is given to tenants in commercial leases. The general rule in modern law is that trade fixtures may be removed by the tenant so long as the removal does not case material damage to the premises. Trade fixtures are defined as any article annexed to the property for the purpose of aiding the business conducted by the tenant. In the original lease the tenant was only required to deliver up those fixtures already in place at the commencement of the lease. The provision did not extend to those fixture placed after the lease began. The second lease provides that the trade fixtures placed by tenant may be removed so long as the removal does not materially damage the premises. Because there is expert testimony that the fixtures in question could be removed without causing material injury to the property, the case should be remanded to exclude from the sale of the property those fixtures which may be removed without causing material damage to the premises.
Discussion. The Court here appeared to be swayed by the evidence that the original lease and the subsequent lease did not specifically prohibit the removal of trade fixtures. The effect of forcing the sale of the building with all the refrigeration equipment inside would be to essentially dispossess the Defendant of his business.