Last week, we described the practical law of (real property) fixtures. We pointed to a recent case decided by the Missouri Court of Appeals, Herron v. Barnard, 390 S.W.3d 901 (2013). You could be removed can see that decision by clicking HERE. And, we promised that, this week, Ruminations would apply the “law” to the “facts” of that case. Let us know if we now deliver on that promise.
To remind you, here’s the background. A tenant with a two year (office) lease had the right to make extensive changes to the leased space. By way of example, the tenant, an architectural firm, was allowed to remove partitions, relocate plumbing and other utility lines, and even relocate the entry door. More important for the purpose of today’s blog posting, the lease allowed it to do the following. Install a sink; install cabinetry with a waste receptacle and storage bin; add appliances; and, install kitchenette shelving. That wasn’t all. The tenant also arranged for a custom-made glass door and matching transom, lots of light fixtures and bulbs, a “picture-hanging” mechanism, filing cabinets, and a security system.
OK, what was what? What was a “real property fixture” that needed to stay with the property and what was personal property that could be removed? The rules used to distinguish between real property fixtures and trade (or business) fixtures are based on three characteristics: annexation, adaptability, and intent. Each of the elements must be present to some degree, however slight.
[DISCLOSURE: We will be cribbing quite a bit from the court’s decision. We have persuaded ourselves that this is a required skill, and is taught in law school. Some will say this is plagiarism. The legal profession will argue that it is the noble art of citing authority.]
The bookshelves were placed on an existing wall in the space in a manner that covered a freight elevator door, rendering it unusable so long as the shelving remained in the space. The shelving itself was affixed to the back wall pursuant to building codes, but it was attached by a “French cleat,” which is a method of attachment whereby the shelving is attached to spacers on the wall, as opposed to being directly attached to the wall; this method is designed specifically to foster easy removal of the shelving from the wall, leaving minimal or no damage. The shelving was also attached on both ends to the newly constructed side walls by sixteen six-inch-long screws.
The wood cabinets above and below the sink were affixed to the opposite side of the kitchenette on the newly constructed wall, also using the “French cleat” method to foster easy removal with minimal or no damage to the wall. The matching refrigerator and dishwasher were plugged into electrical outlets in the newly constructed wall in the spaces made available by the wood cabinetry. Both were also attached to a water line, and the dishwasher was further attached to a waste line to accommodate the garbage disposal. The sink faucet was a “high design architectural faucet” that cost approximately $1,800.00. It could be easily replaced by any other faucet for approximately $50.00. Within the wood cabinetry, there were two doors; one housed the wastebasket and the other housed the wire storage bin.
The filing cabinets adjacent to the sink, appliances, and other cabinetry were not attached to the wall in any manner; instead, they were held in place by gravity alone, and they were attached to one another with tape.
On the opposite side of the newly constructed wall, on the exterior of the kitchenette, was a 48–foot track with suspended wires used to hang pictures and display local artwork. It would not have caused any damage to the structure if removed. In fact, the wall was constructed, in accordance with building codes, to be completely self-sufficient, meaning that it would not be harmed by removal of anything that was attached to it.
The tenant replaced the bulbs in some existing track lighting with special light bulbs to give the space more of a “daylight” feel. It also added accent lighting that merely sat atop the bookshelves, but was hard-wired into the building in order to comply with building codes.
The tenant also installed a custom tempered-glass door and matching transom (with a total height of approximately 14 feet), given to it by the glass manufacturer. The door was attached by two hinges. The transom sat inside wooden pockets built into the drywall surrounding it. Removing the transom would have caused significant damage.
When the tenant first moved into the building, there was no security system, and by the terms of the lease agreement, it was to provide its own security system at its own expense. It purchased a wireless system, consisting of glass breakage sensors and a movement sensor, all taped to the space. Removing this system would not have caused any damage.
After the lease expired, the landlord claimed all of that property constituted fixtures and became its property pursuant to the terms of the lease agreement. In the alternative, it claimed the departing tenant had abandoned all of that property by leaving it on the leased premises beyond the expiration of the lease.
Do you have all of that? Why don’t you pause here and try to characterize each of the contested items?
Courts have many rules and one kind of rule addresses the question of which party to the law suit has the burden of persuading the court as to critical facts. That’s called the “burden of proof.” Though Ruminations understands the distinctions that can be made, and why the law usually says “proof” and not “persuasion,” we think “persuasion” is the bottom line, practical task for the propounding party.
When it comes to ownership, every reader knows the Scottish expression “possession is eleven points in the law, and they say there are but twelve.” Across the pond, here in America, the fast-paced place we are, some may know this principle as “possession is nine points of the law.” Basically, the out-of-possession party has the burden of convincing a court that it, not the possessor, owns the property. In the context presented today, that means the tenant had that burden.
When it comes to convincing a court that an item is a real property fixture, the general rule is that the party (here, the landlord) has the burden of showing that the circumstances of annexation are such as to make something a real property fixture. Remember, items that become real property fixtures very rarely start out that way. They are obtained from elsewhere and then “affixed” to the land or to something that is affixed to the land. So, the presumption (sometimes obvious and sometimes not) is that everything is personal property until proven otherwise.
Thus, to prove that each of the items listed above had become real property fixtures (i.e., part of the real property itself), the landlord, not the tenant, had to address annexation, adaptability, and intent, on an item by item basis.
We’ll let out a little secret about the Missouri case. The lower court ruled that all of the items were real property fixtures. In doing so, it got it all wrong. While Ruminations has not yet graduated from the mind reading course presently enrolled in, we’re going to do a little speculation as to why. We think it got caught up on “annexation,” only one of the three elements that characterize something attached to the land or to a building as a real property fixture. Perhaps it was a fan of authors White and Summers. In their hornbook covering the Uniform Commercial Code, they offered two tests to determine whether an item is a fixture: the “half-inch formula” and the “screwdriver-crescent-wrench-one-hour” rule. Under the former, “anything which could be moved more than a half inch by one blow with a hammer weighing not more than five pounds and swung by a man weighing not more than 250 pounds would not be a fixture.” Under the latter, anything would be deemed a fixture unless one could loosen the item from the floor or wall with a screwdriver and a crescent wrench within 1 hour.
Admittedly, that’s a pretty “neat” rule but, unfortunately, it’s not a complete statement of the law of fixtures. If you don’t remember the law as we laid it out last week, or if you were in Hawaii last week and plan to “catch up” on your Ruminations reading when you get back, you might want to click HERE for last week’s blog posting. We suggest that because we’re only going to repeat the overall guiding principle once: “Whether or not an article is a fixture depends upon the facts and circumstances of a particular case. … “[e]ach of the elements [annexation, adaptability, and intent] must be present to some degree, however slight. … Thus, if there is not substantial evidence to support any one of the three elements, [the party seeking to prove the items are real property fixtures will not have met the] burden of establishing that the disputed items constituted fixtures.” Basically, “absence of evidence supporting even one of the elements precludes a finding that the items were fixtures.”
Dazzled by the architectural nature of each of the contested items, the lower court appeared to have run through the evidence at Bannister-like speed, failing to slow down along the way to review the law. It held that all of items constituted real property fixtures, apparently fixated on the annexation element. After all, in fact, the items were all attached to the real property.
The appellate court made quick work in deciding what was and what was not a real property fixture. Perhaps it wasn’t as fast as Bannister or Bolt, both of whom seemed to have been named after architectural features. But, we’re running long with this blog posting, so we’ll cut it to the quick: to the appellate court, the critical element for the various items was “adaption” – was there anything peculiar or unique about them or were they somehow made an integral part of the building?
Basically, the court treated the three elements as links in a chain. If any chain link won’t hold the weight, the lifted item will fall. Once it determined that only the door and transom had been “adapted” to the building, it didn’t have to wrestle with mind-reading (what was the tenant’s intent?) or figure out how well attached any of the items was to the building.
The picture hanger did not constitute an improvement to the space. Neither the filing cabinets nor the refrigerator were integral parts of the building. Even though the renovations made to the space were made with the idea that the new space would be used as a kitchenette and storage, the bookshelves, appliances, wood cabinetry, wastebasket, storage bin, sink, lighting, and alarm system could have easily been replaced by different bookshelves, appliances, cabinetry, wastebaskets, storage bins, sinks, lighting, and alarm systems. They could have easily been used at a different location. Thus, none of those items were “peculiarly adapted for use on the land in question.”
In any event, the lease contemplated and provided that “business fixtures” would be removable by the lessee. The term “business fixture” is presumably a synonym for the term “trade fixture.” Trade fixtures are: “articles or appliances [that] are in some manner or to some degree annexed to or connected with the realty by the tenant for the purpose of carrying on the particular trade or business for which the premises were demised to him by the landlord, but [that], notwithstanding their annexation or connection, do not become a part of the realty, remaining instead the property or chattels of the tenant, removable by him before the expiration of the term of his lease or the period thereafter during which he holds the premises with the landlord’s consent.” Basically, “[a] distinction is drawn between those articles placed in the building for the sole purpose of enabling the tenant to carry on his business’ and those so placed as to make the building itself peculiarly adapted and more usable for the type of business.’ … “The former may remain personalty [that] the tenant may remove[, but t]he latter becomes annexed to the realty and must be left behind.”
The transom was an entirely different story. It went from floor to ceiling, a height of approximately fourteen feet. “The transom had to be specially built into the walls by setting it inside a custom-built wooden track and then enclosing and concealing the track within the drywall. Removing the transom would have caused significant damage to the property. It is apparent that the space housing the transom was designed with the view of having that particular transom become an integral part of the building itself. The transom was custom made for the space, and the size of the transom (approximately six feet tall) made it unique.”
What about the door? The tests propounded by White and Summers would have shown the door to be personal property. Just take it off its hinges. Like a bookcase, it could be relocated to another building and be replaced with a different door. For this court however, and probably for any other court, common sense prevailed.
Although the door, itself, was only minimally attached to the space, it too was custom-built in combination with the transom. The two items were essentially a package set; thus, if the element of adaptation was met as to one of the items, it was satisfied for both. That’s why the court held that the door, though easily removable, was part of the “door set,” and if the other part, the transom (and likely the door frame) was really, really, really affixed to the building and adapted for that particular building, its helpmate, the door, was just as affixed and adapted.
Can we summarize the definition of a real property fixture? Not really, but in most cases, we get to the right result using the same insight as Potter Stewart used to define pornography. If there is a take-away from this posting and from last week’s posting, it is that many in the real estate industry focus on only one of the three mandatory chain links when figuring out “what kind of fixture is it,” most often only on annexation. Well, you can have a 100 pound chain link in a chain used to lift a 2 pound object, but if another link is rated at only a pound, that dog don’t hunt.