General Practice, Solo & Small Firm DivisionMagazine
Volume 17, Number 2
REAL ESTATE LAW
OWNERSHIP OF PERSONAL PROPERTY REMOVAL AND ABANDONMENT ON LEASE TERMINATION
BY ROBERT J. KRAPF
Any discussion of the relative rights of landlords and tenants at lease termination in improvements, trade fixtures, equipment, and other personal property necessarily begins with an analysis of the law of fixtures because the law treats improvements and fixtures differently from trade fixtures and a tenant's personal property.
Right of Removal. Whether property is a fixture will largely determine whether it belongs to and can be removed by the tenant or belongs to the landlord and must stay with the leased premises. Under common law, a "fixture" is an article that was originally a chattel but is by reason of annexation to land regarded as part of the land itself, having the character of realty and, ordinarily, belonging to the landowner. Whether an item of personal property becomes a fixture depends on several elements. A leading case, Warrington v. Hignutt, identifies the following factors for determining whether a chattel installed on real estate becomes a fixture or remains a chattel: the intention of the party making the annexation, which is the paramount consideration; whether the item can be removed without substantial damage to the realty; and whether the item can be removed without substantial damage to the item itself.
Trade fixtures are items of property that a tenant uses in the conduct of its business and that remain personal property, even though they have the other characteristics of fixtures. Thus, trade fixtures, although fixtures, are removable. Removability is not, however, an essential element in determining whether property is a trade fixture rather than a fixture or personal property.
Because the law of fixtures and trade fixtures turns on intent, what is important is the parties' expressed intention as contained in the lease. A tenant may remove fixtures if they are trade fixtures or if the removal can be accomplished without substantial injury to the landlord's property. In the latter case, the ease of removal shows the parties' original intention that the improvement was not a fixture.
In certain situations, an improvement cannot be removed. Examples are when the tenant's installation is in substitution for property already in place and owned by the landlord; or when the lease requires the tenant to make certain improvements. Of course, after a lease expires, the tenant no longer has a right to remove the fixtures. If the tenant wishes to retain the right to remove trade fixtures after the lease expires, that right must be included in the lease. A tenant has no affirmative duty to remove improvements, provided that the improvements were made in a manner permitted by the lease. A tenant, however, does have the duty to remove its personal property. Accordingly, if the landlord wants the tenant to remove improvements before the lease expires, the lease must expressly contain this affirmative duty.
Abandonment of Property. The characterization of property as a fixture, trade fixture, or personal property will also determine what happens to the property on lease termination. Absent express language in the lease, personal property remains the property of the tenant, whereas fixtures are deemed to have been abandoned by the tenant if it does not remove them before lease termination. A few jurisdictions allow the tenant a reasonable time after lease termination to remove fixtures, but the tenant will be liable for damages in trespass arising from the removal. At some point, the tenant will be considered to have abandoned the personal property. Moreover, the landlord can be held liable to the tenant for wrongfully disposing of the tenant's personal property.
Generally, a tenant does not forfeit or lose title to its personal property by failing to remove it from the leased premises after termination of the lease, even if that failure continues for a reasonable time after the lease ends. Abandonment at common law requires the intent to relinquish a known right or interest. It is therefore important for the landlord to investigate the ownership and lien status of the tenant's personal property and trade fixtures before asserting claims against them and certainly before claiming abandonment by the tenant. This investigation will include a search of the relevant financing statement records.
Landlord's Right to Deal with Property. A corollary concept is the landlord's right to deal with personal property remaining in the premises. Because property that a tenant leaves may interfere with the landlord's use of the leased premises, the landlord has the right under the common law to recover from the tenant the cost of removing and storing that property. The issue arises as to how long the landlord must store the personal property before it can claim that the tenant has abandoned the property, allowing the landlord to dispose of the property once and for all. Courts have generally found that abandonment will be deemed to have occurred if the personal property has not been removed within a reasonable time after the lease termination. Trade fixtures that are not removed after the lease term ends and the tenant has surrendered the leased premises are deemed abandoned and become the property of the landlord. In other words, trade fixtures are treated like fixtures and are deemed abandoned, absent contractual provisions to the contrary.
Some states have adopted statutory limitations whereby, after a certain number of days, the tenant is deemed to have abandoned its personal property. Some states have also adopted variations of the Uniform Residential Landlord Act, which have similar provisions. These statutes often have limitations. The statutory provision may relate only to property remaining after the tenant's dispossession under a possessory proceeding and might not apply if the tenant simply disappears and fails to pay rent.
Careful landlords will draft clear language in the lease relating to the disposition of the tenant's property on lease termination. It is important to provide for disposition of all types of tenant property and not simply improvements or even trade fixtures. Contractual dispositions of property are generally enforceable.
Visual Artists Rights Act of 1990. The Visual Artists Rights Act of 1990 (VARA) grants rights to artists to prevent the removal or destruction of certain works of art incorporated into buildings. Even though art that a tenant installs may be a fixture and, on lease termination, become the landlord's property, the landlord's right to dispose of that property may be qualified if the removal will destroy or mutilate the work. There have been a few cases dealing with substantive claims under VARA for alleged damage to works of visual art. In Martin v. City of Indianapolis, the artist who had created an outdoor sculpture for the city was entitled to damages when the city demolished the sculpture. However, in English v. BFC&R East 11th Street LLC, a New York court held that an artist is not entitled to relief under VARA where the work of art has been illegally placed on property.
Perhaps one of the most significant cases has been Carter v. Helmsley-Spear, Inc., where, as part of the renovations of an office building, the landlord removed certain lobby sculptures that the landlord felt were out of keeping with the desired look of the building. The artists brought an action under VARA to enjoin the landlord from removing the sculptures. The trial court held that the sculptures were works of visual art protected by VARA and that the artists were entitled to an injunction for their lifetimes. The Second Circuit, however, reversed the lower court and held that the sculptures were "work for hire" and exempt from VARA.
The author of a work of visual art can waive these rights to attribution and integrity under VARA. Accordingly, a landlord that secures a work of visual art for a lobby space could obtain a waiver.
Robert J. Krapf is a director and officer of Richards, Layton & Finger, P.A., in Wilmington, Delaware.
For more Information About the Real Property, Probate and Trust Law Section
- This article is an abridged and edited version of one that originally appeared on page 19 of Probate & Property, September/October 1999 (13:5).
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