Landlords, tenants and law students all wrestle over what it means to be a fixture as opposed to a chattel. It matters to landlords because, at the end of a tenancy, fixtures can become their property and enhance the land value. It matters to tenants because they risk losing valuable assets installed on the premises as part of their business. It matters to law students because, on their real property exams, they are frequently asked to write intelligently on a legal test that seems straight forward but, in its application, has bedeviled both litigants and courts.
While most commercial leases or property sale agreements contain express terms dealing with this subject, there are occasions where a tenancy ends or a property is sold that brings a fight over what may be removed and what must stay with the land. This generally arises where the written lease or property sale agreement is either ambiguous or silent on the subject or, in some cases, where there is no written agreement at all. The legal test for determining whether an object is a chattel or a fixture is well settled. Over a hundred years ago, the B.C. Court of Appeal established a legal test, still followed today:
- Articles not otherwise attached to the land than by their own weight are not to be considered as part of the land, unless the circumstances establish that they were intended to be part of the land.
- Articles affixed to the land even slightly are to be considered part of the land unless the circumstances establish that they were intended to continue as chattels.
- The circumstances necessary to alter this primâ facie character of the objects are the degree of annexation and the object of such annexation, “which are patent to all to see”.
- The intention of the person affixing the object to the soil is material only so far as it can be presumed from the degree and object of the annexation.
Making sense of this test depends entirely on the facts of each case. A recent decision provides an example. Here, the vendors of a ranch sought to recover a variety of items they had used to operate their ranch before they sold it. The items included 124 concrete feed troughs, three augers, a roller mill and a Hi-Hog cattle handling system. The contract was ambiguous about what was and what was not included in the sale. The new ranch owners wanted to keep these things and opposed the request for their return. They pointed out that most of the items were both affixed to the land in some way (i.e., bolted, welded or cemented in place) and were necessary for the better use of the land as a ranch, rather than the better use of the individual items themselves.
In reasoning that, quite frankly, could have gone either way, the Court found that the disputed items were chattels and remained the vendors’ property. For each particular object, the court reasoned that, though affixed to the land in some way, they were either not that affixed and/or were so for their own better use rather than the better use of the land. For example, here is what the court wrote of the roller mill and augers:
. . . the rollermill and the augers were easily moveable. The bolts and hard wiring and other connections annexing [them] to the structure are simple to disconnect and allow for their easy removal. . . . while the rollermill and the augers are attached to the land, . . . these are relatively minor attachment systems. I conclude that the annexation of the rollermill and augers were for the better use of the grain grinding system, not for the better use of the land to which the system was annexed. I find that the annexation of the rollermill and the augers were for the better use of the grain breaking system, not for the better use of the land to which the items were annexed. I find the rollermill and the augers were chattels . . .
It would not have been difficult for a court to go the other way and find that these items were affixed to the land (making them prima facie fixtures) and were for the better use of the land as a ranch than the individual pieces of equipment for their distinct purpose. A possible clue to the outcome was that the vendors (two couples) had originally been compelled to sell their ranch by court order when they had a falling out. The Court may not have wanted the purchaser to benefit from the unfortunate demise of a previously successful ranch.
If you want to keep things you have installed on land you either lease or are about to sell, it would be wise to get the agreement of your landlord or purchaser up front. With a landlord, make sure your rights to do so are protected in the lease. With a purchaser, make sure you set out in the contract of purchase and sale the items that are excluded from the sale price. Failing that, you may face a dispute over the nature of the objects that are both valuable and critical to your business. That is a dispute which could go either way.