What is a tenant's fixture and fitting - Scottish dilapidations?

Generally everything that is in the premises at the start of a commercial lease belongs to the landlord and is let to the tenant. The tenant must look after it during the lease and return it to the landlord at the end, usually in good condition and repair.

A tenant will often alter the premises to suit its needs. It will add things to the premises and take things away.

The things the tenant adds will either be moveables – eg tables, chairs – or fixtures – walls, escalators, mezzanines.

At the end of the lease, the tenant will normally be obliged to remove its alterations and reinstate the premises. Sometimes, however, the tenant's alterations are valuable. They might make it easier for the landlord to re-let the premises, or they may have a high re-sale value. The landlord might therefore choose not to ask the tenant to remove its alterations. In that case, is the tenant obliged to leave them in the premises?

MOVEABLES

If the alterations are moveables, the answer is no. The tenant can take them with it, provided the lease doesn't clearly say otherwise.

If the alterations are fixtures, it depends on whether the fixtures are tenant's fixtures (sometimes called trade fixtures).

FIXTURES

A fixture is anything physically and permanently attached to premises, provided it is a lesser, subordinate part of the premises. When a fixture is attached to the premises, it becomes the landlord's property, and needs to be delivered to the landlord at the end of the lease unless (1) the lease says otherwise; or (2) the lease is silent and it falls within a common law exception.

TENANT'S FIXTURES

The main common law exception is tenant's fixtures.

Tenant's fixtures tend to be valuable, and important to the tenant's business (For example, a large manufacturing machine). If tenants lost ownership of those sorts of items every time their leases came to an end, they would stop entering leases. The law recognised this centuries ago and that is why it developed the tenant's fixtures exception, so that tenants were entitled to remove them at the end of their leases.

To determine if a fixture is a tenant's fixture, you have to look at the following criteria.

1 The method of attachment to the land.

2 The nature of the fixture – whether it was capable of being taken to pieces and put together again or incapable of being removed without destruction.

3 The use of the fixture – whether it was beneficial to the premises, or useful only to the tenant in his trade or occupation.

4 The relative values of the fixture and the premises.

5 The agreement (express or implied) between landlord and tenant as to the conditions on which the fixture was to be placed in or annexed to the premises.

SCOPE FOR DISPUTE

There is scope for a fight on this. In the case of David Tanner v E Moss Ltd, the lease set out a mechanism by which the landlord could ensure the tenant removed its alterations and made good the premises at the end of the lease. The lease was silent on what happened if the landlord did not exercise that mechanism.

The landlord, who wished to retain the fit out, which included tenant's fixtures, claimed that if it did not ask for an item to be removed, the tenant had to leave it in the premises.

The court disagreed. Clear words would need to be used in the lease to stop a tenant from being able to exercise its common law right to remove tenant's fixtures. If the landlord didn't ask the tenant to remove its fixtures, that did not imply an obligation on the tenant to leave them in the premises.

What constitutes "clear words" will very much depend on the words used and the context in which they are used. Tanner was appealed, including on this point, but it has since settled.

CLARIFYING THE POSITION IN THE LEASE

Sometimes the parties know during lease negotiations that the tenant will make costly/valuable alterations that would benefit the premises. If the landlord wants those to remain in the premises at lease expiry, the lease can include a clause recording that whilst the tenant will install them, those alterations are to remain in the premises at lease expiry.

Alternatively, the parties may not know at the start of the lease what alterations a tenant may put into the premises. The landlord may still want to retain flexibility at lease expiry. Here, the lease could contain provisions enabling the landlord to notify the tenant at lease expiry which tenant alterations are to remain in the unit. That notice would need to be prepared and served on the tenant in advance of lease expiry, and in sufficient time before lease expiry so that the tenant has not already started its strip out.

Scotland and England are not the same in their approach to tenant's fixtures. For an interesting view on the English position, see Leonie Hall's blog here https://brodies.com/insights/real-estate/fixtures-...