Co-Authored by Matt Sanderson & Lindsey Postula
THE MYSTERIOUS TRADE FIXTURE
What are trade fixtures? Trade fixtures are the equipment that a tenant uses to operate its business. Although they are not considered to be real property (which means they don’t fall into the definition of fixtures), they are generally attached to the leased premises in some way, whether they are affixed to the walls or connected to utilities. They are different from other personal property of the tenant because 1) taking them out of the premises can cause damage, and 2) they can be particularly valuable. These two factors mean that landlords care about how and when trade fixtures are removed from the premises. Restaurant owners care about the removal of trade fixtures because the equipment is frequently leased from third parties. Some examples of trade fixtures include soda machines, coffee makers, dishwashers, and water heaters.
GET YOUR STUFF AND GO!
Determining early on whether an item is a trade fixture can prevent post-lease confusion between a landlord, tenant and equipment lessor. Once the lease ends and the tenant is obligated to surrender the premises, it can be very difficult to decide what the tenant is obligated to remove and what the tenant is permitted to remove under the lease. The best policy is for the tenant to negotiate the removal of key trade fixtures at the start of the lease. Although a tenant can request the right to remove its trade fixtures at the end of the lease term, many retail leases also say that the tenant is not permitted to remove fixtures or items that are permanently attached to the premises. Sometimes, this restriction obfuscates the issue because it includes examples of certain items that the tenant cannot remove that the tenant may otherwise consider to be trade fixtures. A smart tenant will clarify ownership of these items before signing the lease by expressly designating them as “removable trade fixtures.” The tenant should compile a list of equipment that it plans to lease to make sure that none of these kinds of equipment are designated by the landlord as items that cannot be removed at the end of the lease term. Tenants should also incorporate into the lease a catch-all provision that, notwithstanding anything to the contrary in the lease, any equipment leased from third parties can be removed. This will prevent the tenant from being caught between complying with its lease of the premises and complying with its equipment lease agreement.
CLEAR AS MUD
The issue of what is removable from the premises generally appears in multiple provisions of the lease (surrender of premises, landlord’s lien, default and remedies, and work letter agreements, among other provisions). It can also be affected by separate agreements, including landlord’s lien subordinations and third party lease agreements. Sometimes, the answer as to whether or not something can be removed by the tenant is affected by how the equipment is used, who paid for it, how it is installed, and how carefully it is removed. Because these provisions work together, it is advisable for a tenant to get help from an attorney to review the lease and negotiate provisions concerning the removal of trade fixtures before the lease is signed. Careful lease drafting by an attorney can pave the way for a tenant’s good relationship with its landlord and prevent pesky legal troubles down the line.
Have you had issues removing trade fixtures? Please share your stories!
About the authors: Lindsey Postula is an attorney at Looper Reed & McGraw who can twist, turn, spin, and juggle any lease provision out there. She and Matthew Sanderson tackle issues in the restaurant industry on a daily basis. Click here for Lindsey Postula’s web biography, and Click here to find out more about Matthew Sanderson’s legal practice and how he can help you today. Follow him on Twitter @dealattorney.