The cost implications
When you take on the lease of a new pub or restaurant it is common to want to refit the premises and to invest in a successful outlet. At the time you take on a lease it is important to consider whether the improvements you make will be yours to remove at the end of the lease and whether by making significant improvements this will have an impact at rent review time. You should consider whether the lease needs to deal specifically with this issue.
What are fixtures, fittings and chattels?
In the pub and restaurant trade the term fixtures and fittings is used colloquially to mean the loose trade inventory items, furniture etc which are used in the business. Legally these items are actually “chattels”.
Fixtures are items which are annexed to (or in layman’s terms attached to) the land, chattels are not. There is often discussion about whether an item is sufficiently annexed to the land to become a fixture.
Are the fixtures the landlord’s or tenant’s?
When you have refurbished a restaurant or bar you want to be sure that you can remove items such as expensive cookers, custom made bars and ceilings. A tenant’s fixture can be removed from the property by you prior to the end of the lease. A landlord’s fixture cannot be removed by you.
A tenant’s fixture is something that you have annexed to the land for the purposes of your trade, for your convenience or as an ornament. You must be able to remove it without causing substantial damage to the property and without the item using its usefulness. For example, if you have added a smoking shelter which is a self standing wooden structure sitting on a concrete base then the structure could be removed by you as a tenant’s fixture. On the other hand if the shelter is made of brick and keyed into the fabric of the building such that it cannot be removed without firstly destroying the shelter and secondly causing substantial damage to the property this will have become a landlord’s fixture which you would not be entitled to remove.
Fixtures which are on the property when you take on the lease are also landlord’s fixtures. Although, for example, fixed seating would usually be a tenant’s fixture, if it was on the property when you took on the lease then it would be a landlord’s fixture. Equally if when you take on the property it has a fridge in the bar then even if you replace the fridge when it breaks it is still a landlord’s fixture.
Can you remove a tenant’s fixture at the end of the lease?
Yes, as long as:
- you are still in lawful occupation of the property. Once the lease has come to an end, e.g. following a peaceable re-entry by the landlord to forfeit the lease for non-payment of rent the tenant loses its right to remove its fixtures ;
- there is nothing to the contrary set out in your lease. A lease will include a “yield up” clause. This might specify that the property must be yielded up with “all fixtures” in which case you will not be able to remove your tenant’s fixtures. If you want to be able to remove valuable improvements you make to the property then this is something to bear in mind when negotiating a lease.
Do you have to remove tenant’s fixtures at the end of the lease?
Only if your lease or any subsequent licence for alterations require you to do so and reinstate the property to its original condition. Otherwise you are not obliged to remove tenant’s fixturesthough you will need to remove all chattels in order to give vacant possession.
If you are required by your lease to remove all tenant’s fixtures then this is something to factor into the cost of surrendering your lease. Again, it is wise to consider this issue at the time when the lease is being negotiated.
Impact on rent review
It is particularly important at rent review time to be able to identify whether certain fixtures are landlord’s or tenant’s. If you have added significant value to the property by your improvements and tenant fixtures you do not want these reflected in the rent that you are asked to pay. A landlord may argue for inclusion on the basis your additions have become landlord fixtures and therefore, for example, on any open market rent review these should be assumed as forming part of the property for rent review purposes.
Purchase of a property
If you are purchasing a property which is subject to a lease it is important to know which fixtures are part of the property and which will be removed by the tenant at the end of the lease. This may well affect the value of the property.
In an Opco/Propco structure it is important that it is clear which are landlord’s fixtures and which are tenant’s fixtures. The danger otherwise is that Opco as the operating company could claim capital allowances on fixtures it does not own and vice versa with tax implications and potential issues when there is a group restructuring or subsequent disposals.
Knowing whether your planned refurbishments will amount to tenant’s fixtures or landlord’s can have important cost implications and should be considered with your professional advisers at the time of entering into a lease.
This is just a brief overview of fixtures and fittings. To view the extended article, please see our publications section under the ‘Legal Updates’ tab or click here.
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