Court of Appeal: lease gave landlord the right to prevent removal of tenant's fixtures during term of that lease

Overturning the reasoning behind the High Court's decision in favour of the tenant last year, Lord Justice Rimer said that the terms of the lease had effectively removed the operator of the steel plant's right to remove the items under the general rule applying to 'tenant's fixtures'.

"A central commercial obligation under the lease was the imposition upon the tenant of the [obligation] to build and equip a steel-making plant," he said. "That of course involved an alternation and change to 'the said premises' as they were at the grant of the lease, because whether or not it involved any alternation to the original buildings, it certainly involved an alteration to the site."

"I regard it as clear, however, that the sense of [the lease] must also have been to proscribe any alterations or changes to the building and plant erected in compliance with that [obligation], save in so far as permitted by its proviso ... If this is [correct], then in my view it must follow that [the premises] includes the new building and plant, including the fixtures, whether landlord's or tenant's, which form part of the demised premises. It follows that during the currency of the [lease], the tenant is precluded from removing any tenant's fixtures," he said.

There was no dispute between the parties to the appeal that the items in dispute were in fact 'tenant's fixtures' as designated by the High Court judge, and so detachable from the property once the lease had expired. The lease required the tenant to erect a fully-equipped steel making plant and rolling mill on the site, and to keep them in good repair.

Property law expert Ross McDowall of Pinsent Masons, the law firm behind Out-Law.com, said that the central issue for landlords and tenants had not changed as a result of the Court of Appeal's decision.

"The question before the Court of Appeal was whether the lease allowed the tenant to remove its fixtures prior to expiry of the lease where that removal was not for the permitted use or for the purposes of replacement of or alteration to the relevant kit," he said. "In this instance, the Court decided that as the fixtures were to be removed for sale the lease terms could be interpreted such that the tenant was not entitled to remove its fixtures during the lease term."

"Where the drafting can have more than one meaning the Court will determine the appropriate construction of the wording. In doing so they will take into account the principle that tenants should generally be permitted to remove their fixtures. Nevertheless as shown in the current decision, this does not automatically mean that the Court will interpret the lease in favour of the tenant" he said. "Accordingly, whilst the Court of Appeal decided in favour of the landlord, the point for landlords and tenants remains as it was in the High Court's decision: if the parties wish to avoid dispute on removal of tenant's fixtures, clear and unambiguous wording should be included in the lease."

The tenant, who is the operator of the Sheerness steel mill in Kent, had previously successfully argued that it was entitled to remove these fixtures from the property before the expiry of the lease. In his original judgment, Mr Justice Morgan said that any provision in a lease which sought to override the tenant's right to remove a fixture must contain "clear words", and that a term in the lease which required the tenant to install fixtures did not in itself prevent the tenant from removing the ones that it was entitled to.

Lord Justice Rimer disagreed. The High Court judge had applied too strong a test to the language used in the lease, he said. He agreed with the landlord, Peel, that in fact there was "no rule of law that especially clear words must be used in a lease in order for a tenant's right to remove fixtures at any point during the term to be validly ousted". Instead, all that was required was "language that, upon its ordinary construction, has that effect", he said.

"The guidance provided by [previous case law] amounts to no more than a statement that if a tenant's prima facie right to remove tenant's fixtures is to be ousted, the language of the lease must make that clear," he said.

"The rule was not prescribing how such language should do so; and whether or not, in any case, it does make it clear must in my view be a question to be answered by a consideration of the language of the particular lease ... If the outcome of that exercise is that the court arrives at a confident conclusion that the intention of the parties was that the tenant's right to remove tenant's fixtures was to be ousted, that will be the effect of the lease," he said.

Lord Justice Vos, also on the panel, agreed with Lord Justice Rimer's conclusions. He said that it would "throw the entire process of contractual interpretation into doubt" if a court was able to conclude that fixtures could not be removed under the terms of the lease, but was unable to give effect to this because "that meaning was not adequately clearly stated".