What happens when leased equipment is installed in a rental property, and the tenant fails to pay the rent? The answer can depend on whether the equipment has become a ‘fixture’. The law distinguishes between fixtures (that belong with the land) and chattels (that do not belong with the land). If an item is permanently attached to a property it is presumed to be a fixture. For example, if an item requires tools to remove it from the property it may be considered a fixture, such as a furnace or a central air conditioning unit. On the other hand, items such as a chairs, beds, or a lawnmower would be considered chattels because they are easily removable from the property. Sometimes determining the difference between a fixture or chattel can be a little more complicated. For instance, a television may normally be considered a chattel, but when it is affixed to the wall with complex wiring embedded in the wall then it could be considered a fixture.

 

Normally, chattels purchased by the tenant and used in a rental property can be removed by the tenant who will continue to be the owner, while fixtures will remain with the property they are attached to. A lease will typically require that if the tenant wishes to remove fixtures they have installed, it will be at their own expense, and the tenant will be responsible to repair any damages arising out of such removal.

 

Failing to Pay Rent

What happens if the tenant installs leased equipment in a rented property, and then fails to pay the rent? Can the landlord sell the equipment to satisfy the rent? The answer is … yes, sometimes.

 

Recently in Alberta, the defendants owned a restaurant and entered into a lease with the plaintiffs (equipment supplier) to rent equipment for the restaurant (an exhaust unit, fan and fire suppression system).The equipment was installed in the restaurant but the defendants did not make the payments for the equipment. The restaurant also did not pay the rent to the landlord. The landlord took back possession of the restaurant where the equipment was installed. Under the restaurant lease, the defendants could have removed the equipment, but they would have had to pay an upfront fee of $5,000 to pay for damages caused to the building by the removal of the equipment.

They did not pay this fee.

 

The plaintiff (the equipment supplier) sued the defendants for the payments and for the loss of the equipment, because the equipment was in the possession of the landlord of the defendant’s restaurant. Under the equipment leasing agreement, the supplier had the right to remove the equipment or sue for the lease payments, and the restaurant was obligated to ensure that the equipment did not become a ‘fixture’.

 

The court ruled the defendants were liable for the defaulted rental fees. The court reasoned that upon the termination of the lease since the defendants did not remove the fixtures they became vested property of the landlord. Since the agreement stated that the defendants were responsible for ensuring the equipment did not become fixtures, the restaurant had broken its contract and was responsible for paying the equipment supplier.

 

In the end, the restaurant had to pay for the equipment which had become the property of the landlord of the restaurant. The equipment supplier had protected itself by making the defendants responsible to pay if the equipment became a ‘fixture’.

 

 

Takeaways:

  • Ownership of a fixture flows with the property it is affixed to.
  • When a property is leased the landlords can assume ownership of any fixed equipment even though they were not a party to the lease agreement for the equipment.

 

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