Peel Land and Property (Ports No. 3) Ltd v TS Sheerness Steel Ltd [2014] EWCA Civ 100

Summary

In our Autumn 2013 edition we considered the decision of the Court allowing a tenant to remove even very heavy industrial items. This decision has now been overturned by the Court of Appeal.

In contrast with the first instance decision, the Court of Appeal has ruled that the tenant would be prevented from removing its fixtures at a recycling plant until the end of its lease. Although tenants are frequently able to deal with or dispose of their fixtures as they see fit, the terms of the lease precluded the tenant from doing so in this case. 

The decision did turn on the facts and the particular drafting of the lease, as it will do in every case. Nonetheless, it gives a useful illustration as to how a Court will approach this subject. 

The facts

The Claimant ("the Landlord") was the Landlord of a recycling plant in Sheerness ("the Premises"). The Defendant ("the Tenant") was the Tenant of the Premises for a term expiring in 2093. The lease was a building lease, entered into in 1971 for a term of 125 years from 1968.

Pursuant to clause 1 of the lease of the Premises, the Tenant was required to construct a fully-equipped steel plant and mill, capable of producing at least 50,000 tons of steel every year, although there was no obligation placed on the Tenant to actually run the plant. In addition, the lease provided that the Tenant could not make any change to the Premises unless it was to their usage for an industrial purpose as approved by the Landlord.

By 2012, the Premises were not being used for the production of steel, and the Landlord was concerned that the former tenant ("Thamesteel") would remove and sell valuable fixtures at the Premises. These fixtures included integral parts of the steel making plant including, for example, an "electric arc furnace" weighing some 1,195 tonnes. The Landlord issued proceedings to prevent this.

Thamesteel went into administration in January 2012, and the Tenant was established as an SPV to acquire its business and assets. Consequently, the Tenant was substituted as the Defendant when it acquired the lease.

The original case raised many questions as to which items were chattels or tenant's fixtures, and the judge found that all items but one fell within these categories. The Court ruled that the Tenant would be permitted to remove the items from the Premises and dispose of them as it saw fit. The Landlord did not oppose the rulings on the nature of the items, but it appealed on the last point to prevent removal and sale.

The issue

The key issue considered by the Court was whether the Tenant had the right to "sever and remove" its fixtures at the Premises, or whether the wording of the lease prevented it from doing so until the end of the lease in 2093.

Fixtures to land are deemed to become part of the land, and they will remain so for as long as they are fixed to it. However, as a default position, tenants are allowed to remove fixtures that are installed by them for their purposes, provided that removal does not cause substantial damage to the land or the loss of its essential utility.

The Landlord argued that this rule could be excluded by the terms of the lease. The Tenant's counter-argument was that this would only be possible if the exclusion had been spelt out in "plain language" to apply to its fixtures. 

In its appeal, the Landlord argued that there was no binding authority to support the position that any special language must be used. All that was needed was language that would have this effect when read in the ordinary way. The Landlord then argued that this lease did contain such wording, the effect of which was to prevent the Tenant from removing the items and thus changing the Premises. The Tenant disputed this on the basis that there must be specific "plain language" if a lease is to contain such a restriction on the tenant's rights.

The decision

The Court of Appeal found in favour of the Landlord and allowed its appeal.  

It was held that "plain language" was not necessary to incorporate a restriction in a lease concerning the removal of a tenant's fixtures. However, it is very important to note that any ambiguity as to a clause's meaning would be construed against the Landlord.

The Court also held that clause 2(6) operated to impose a negative obligation in respect of making alterations or changes to the Premises. The Premises incorporated the Tenant's fixtures, including any installed or built on the site by the Tenant after the grant of the lease. It must follow that the Tenant could not remove its fixtures throughout the term of the lease.

Our advice for landlords

In circumstances where the value of a property is dependent on Tenant's fixtures, it will be vitally important to ensure that the lease clearly describes whether the Tenant is restricted from altering or removing them. 

Although the Landlord was successful in this case, ambiguity on this point will be construed against a landlord. Consequently, it will usually be best to agree the position between the parties before entering into a lease and to ensure that the lease drafting is clear on the point.

Our advice for tenants

Before removing or altering tenant's fixtures, tenants should seek advice to ensure that they are not precluded from doing so under the terms of their leases. In the absence of agreed restrictions, tenants will be in a strong position to argue that they may dispose of their fixtures as they see fit. However, as noted above, it will usually be best for both parties to agree a clear position from the outset and record this in the lease. Any tenant fitting items that it may wish to remove should ensure that this is protected in the drafting.