Peel Land and Property (Ports No.3) Ltd v TS Sheerness Steel Ltd

A tenant’s right to remove fixtures depends first on the general law and may be excluded by the lease only in clear terms. The court must distinguish chattels, fixtures and items forming part of the land. For fixtures, the relevant questions include their physical extent, purpose of annexation, method and consequences of severance, and whether the item retains its essential character and utility. The fact that removal would impair the operation of other plant is not itself a test of removability. Large, complex or technically integrated plant may nevertheless be removable where it can be severed without substantial damage and retains its essential utility. A covenant requiring the tenant to install or maintain plant does not, without more, remove the right to remove tenant’s fixtures. Clause 2(6) of the lease was insufficiently clear to override that right.

The claimant, landlord under long leases of land occupied by a steel works, sought declarations and restraints concerning the defendant tenant’s proposed removal of plant and machinery. The leases required the tenant to construct and operate a fully equipped steelmaking plant and rolling mill. The disputed items included furnaces, casting and rolling equipment, cooling systems, cranes, transformers and other plant.

The parties disputed whether individual items were chattels, removable tenant’s or trade fixtures, or part of the land. They also disputed whether the lease, particularly the tenant’s construction covenant and clause 2(6), excluded any otherwise existing right of removal.

1. Classification and removability. The court applied the established distinction between chattels and fixtures, assessed objectively by the degree and purpose of annexation. It separately considered whether fixtures were removable tenant’s fixtures. Relevant considerations included the physical extent of the item, the purpose of installation, the practical method and difficulty of severance, damage to the premises and the item, and whether the severed item retained its essential character and utility.
2. The fact that removal would make the remaining steelworks unable to function was not a diagnostic test. Functional interdependence could assist in deciding whether items formed one composite entity, but the principal focus was on the condition and utility of the item removed and on physical damage to the premises.
3. The court treated numerous items as chattels or removable tenant’s fixtures. Spare transformers and regulators which had never been installed remained chattels. Certain cranes, ladles and tundishes were also chattels. Other large and complex items, including furnaces, fume-treatment plant, casting machinery, bar and rod mills, cooling systems and installed transformers, were removable tenant’s fixtures. A gas-fired reheat furnace was not removable because severance would substantially destroy it and might mean that it formed part of the building.
4. The tenant’s obligation under clause 1 to construct a fully equipped steelmaking plant did not alter the general law. The commercial position differed from one in which the landlord had constructed and equipped the building. The reasoning in Mowats Ltd v Hudson Bros Ltd and Young v Dalgety plc applied.
5. A lease may exclude the right to remove tenant’s fixtures, but clear language is required. Reading clause 2(6) with the lease as a whole, its references to alterations or changes in or to the premises did not clearly include removal of tenant’s fixtures. The clause therefore did not regulate the defendant’s right of removal.
6. The defendant was entitled to remove the items classified as chattels or removable tenant’s fixtures.