What constitutes a fixture - and who owns it?
Posted on August 02, 2013
An argument over medical equipment recently threw a spotlight on the sometimes blurred line between fixtures, chattels and ownership, and why these things should be articulated in a lease.
The Facts
Cortez Enterprises Pty Ltd (the Landlord) owned a substantial private medical centre.
The centre contained a surgical hospital, a radiology and nuclear imaging service, a cancer treatment centre, a pathology laboratory and other medical facilities.
A lease over a portion of the centre was granted to Cancer Care Institute of Australia Pty Ltd (the Tenant) but there was no written lease agreement in place.
At a cost of almost $9 million, the Tenant purchased two linear accelerators on credit terms, used for the treatment of cancer patients by delivering high energy radiation to the precise region of a patient’s tumour.
The linear accelerators were substantial pieces of medical equipment that were supported by separate steel frames that had been cemented to the ground of the centre prior to delivery.
The Tenant went into administration and a dispute arose between the Landlord, the Tenant, the Tenant’s administrator, the Landlord’s mortgagee and the supplier of the linear accelerators on whether they were the property of the Tenant or the property of the Landlord.
The Landlord and its mortgagee argued that the accelerators were a fixture and accordingly the Landlord’s property.
The Tenant, its administrator and the supplier argued the linear accelerators were a chattel and accordingly the Tenant’s property.
Outcome
The Court held that the accelerators were not fixtures and were the property of the Tenant.
Explanation
The Court applied established tests for what constitutes a fixture. The relevant factors for determining whether an item is a chattel or a fixture, include:
- the intentions of the chattel’s owner;
- the degree that the chattel is fixed to the land; and
- the purpose for which the chattel is fixed to the land.
Applying the above, the Court held that the Tenant’s intent was for the linear accelerators to be assets of the company and objective evidence indicated the linear accelerators were ‘mobile’ items that were commonly moved between hospitals and medical centres and, as such, were not fixtures.
The Landlord’s claim was dismissed and the Landlord was ordered to pay the Tenant’s costs.
Lessons
- Always have a written lease. No party was served by the absence of a written lease agreement in this case. It is common for leases to provide that ‘tenant’s property’ includes any property the tenant installs that becomes fixed to the land.
- It is usually clear what the tenant’s property is when leasing commercial office space. In other premises the line between the tenant’s property (chattels) and the landlord’s property (fixtures) may become blurred. For example:
- Appliances in a restaurant kitchen;
- Fixtures in a showroom;
- Racking in a warehouse;
- Built in cabinets in accommodation premises;
- In such circumstances, special attention must be given at the negotiation stage as to what constitutes the tenant’s property for the purpose of maintenance, make good and depreciation.
How Lynch Meyer can help
Lynch Meyer can advise landlords and tenants on all aspects of leasing, including whether property is a fixture or a chattel and what property must be removed at the end of a lease.