United States: Leasing Tips For Commercial Landlords And Tenants: Who Owns The "Fixtures" When The Lease Expires?

Last Updated: August 3 2015
Article by Christopher Tesar

When a lease expires, it is not uncommon for landlords and tenants to dispute what constitutes the landlord's property and what constitutes the tenant's property, even when sophisticated parties and equally sophisticated leases are involved. Ownership disputes also can arise when the tenant defaults and the landlord sues to terminate the lease and recover possession of the premises. What constitutes the "premises" is not always as clear as one might think, however. Finally, ownership disputes can arise in the context of a bankruptcy when creditors, including the landlord, the tenant, and the trustee, contest ownership of the tenant's assets.

Some Basic Principles

Land and buildings are quintessentially "real property" and revert to the landlord when a lease expires or is terminated. Except in rare instances, there is no dispute over who owns the land and the building. The ownership issue is less clear when it concerns tenant improvements and installations that are substantially integrated into the premises, such as complex refrigeration systems, extensive boiler systems (and related distribution lines, pumps, and water-softening tanks), wall-mounted forklift charging stations, pallet racking, and similar equipment in an industrial facility. Are these items the tenant's personal property that the tenant is entitled to remove, or are they so integrated into the building that they constitute a part of the landlord's reversionary interest in the premises?

State law generally provides definitions and basic principles that eliminate simple cases. Property is either "real property" or "personal property." Real property is "immovable" and includes land and buildings. Personal property is "movable" and includes furniture, fixtures, and equipment the tenant uses in its trade or business and is entitled to remove at lease expiration. Such personal property usually is defined as a "trade fixture." Unfortunately—and the source of almost all ownership disputes in this area— real property also includes property that in fact can be removed but is "affixed" to or "imbedded" in the land or a building to such an extent that it cannot be removed without "injury" or "damage" to the land or building. Such hybrid property commonly is defined as a "fixture." Leases sometimes embellish these definitions and basic principles. For example, injury or damage upon removal often must be "material" for an item to be characterized as a real property fixture rather than a trade fixture. However, "materiality" is of limited assistance when each side is motivated to leverage any lack of objective certainty to its advantage. The party that paid for the item does not necessarily prevail in these disputes. Most state laws and sophisticated leases provide that even an item that otherwise might be a trade fixture before it is installed becomes the landlord's property at lease expiration or termination if it is sufficiently attached to or incorporated into the premises.

One Landlord's Unfortunate Experience

The author is familiar with an unfortunate case in which a private equity fund subsidiary purchased a very large, FDAcertified refrigerated food-processing facility. The tenant, also a private equity fund subsidiary, had purchased the food-processing business from the original founders of the enterprise. A long-term lease between the founders' landholding entity and their operating entity was in place at the time of all the purchase and sale transactions. Accordingly, neither party to the lease was an original participant in the creation of the landlord-tenant relationship. Within a relatively short time, the tenant went into bankruptcy.

The landlord obviously was distressed to lose its tenant, but became even more distressed when the trustee in bankruptcy claimed that all the boilers, refrigeration coils and compressors, water-softening equipment, and many other items the landlord considered necessary to operate the facility as an FDA-certified refrigerated food-processing facility, were removable trade fixtures and not owned by the landlord. In theory, all these items could be removed, though in some instances it would be a major endeavor and significant repairs would be required. Moreover, without these items, the facility could not be operated as a food-processing facility, which had been the facility's intended purpose since construction. The bankruptcy trustee elected to litigate ownership. Knowledge of who had paid for and installed the contested property might have helped the tenant, but neither the tenant nor the landlord was an original party to the lease. Documentary evidence, such as purchase invoices and depreciation schedules, was sketchy. In any event, the lease provided that "fixtures" became the landlord's property at lease expiration or termination. The landlord made the business-driven decision to settle, paying $2.5 million for equipment affixed to and, in many cases, imbedded in the premises that was integral to its operation for its intended purpose. Now, the landlord had no tenant and, in its mind, had paid $2.5 million to "purchase" its own property!

Some Practical Suggestions to Manage Uncertainty

Can situations like this be avoided, or at least mitigated? In the example above, neither party could do much about the lease itself since it already was in place when they came upon the scene, but the lease negotiation stage usually presents the best opportunity to address the personal property "trade fixture" vs. real property "fixture" challenge.

The following are some suggestions for landlords and tenants:

  • It is extremely difficult to craft definitions of key terms sufficiently well to eliminate disputes, but the likelihood of disputes can be reduced with thoughtful drafting. For example, the landlord in our illustration would have had a stronger case if the lease had provided that fixtures that are necessary to the operation of the building for its intended purpose, constitute landlord's property regardless of when it was installed or by whom. Alternatively, a tenant would want fixtures to remain its property unless removal caused damage that could not (reasonably) be repaired.
  • When possible, it is useful to list and categorize existing or to-be-installed items that are highly susceptible to controversy in a schedule to the lease. The landlord burned in the example above insisted on extensive scheduling of "landlord's property" and "tenant's property" when it finally found a replacement tenant. The landlord also took advantage of the opportunity to include extensive provisions relating to the maintenance, repair, and replacement of scheduled items, including detailed language regarding the tenant's right to abandon items that no longer were of productive use and who owned "landlord's property" that the tenant replaced during the lease term. These precautions benefited both parties by providing some clarity.
  • The landlord in the illustration above had the facility carefully inspected at the time of purchase, but it did not incorporate the information in the inspection report into the purchase agreement in any effective way. For example, the landlord did not include a schedule of "landlord's property" adequately supported by one or more seller representations and warranties. The survival period of the representations and warranties and related indemnity provisions may not have been sufficient to provide a remedy against the seller when the actual dispute with the tenant arose but, if nothing else, scheduling with supporting representations and warranties would have compelled the parties to pay attention to these issues, thereby reducing the likelihood of them arising unexpectedly in the future. A buyer of a business operated from leased premises can make similar good use of inspections, scheduling, and representations and warranties to protect its position.
  • The landlord also obtained an estoppel certificate from the tenant, but the certificate addressed "customary" matters such as term expiration date, rental rate, rent adjustments, options to extend the term, and whether any defaults existed. Although a buyer cannot abuse a tenant by demanding confirmation of information well beyond custom and practice, some lease provisions on the subject of the tenant's obligation to provide estoppel certificates contain omnibus language that may afford the opportunity to include at least some useful information on the subject of landlord's property and tenant's property. From the buyer-tenant perspective, the document evidencing the landlord's consent to the lease assignment or sublease of the premises can be crafted to include confirmation of the status of fixtures that may become the subject of lease-end disputes.
  • Typical lease provisions regarding the landlord's prior consent to the tenant's installation of fixtures and trade fixtures also can be helpful to both landlords and tenants. In industrial facilities, tenants often negotiate for broad authorization to alter and improve the premises but, even if the landlord agrees to this, requiring prior written notice to the landlord at least establishes a paper trail of who installed what and when and gives the parties the opportunity to discuss whether, at lease expiration, a particular installation may trigger an ownership controversy.

Though it may be too little, too late in some instances, a landlord and tenant walk-through of the premises before the tenant moves out affords the parties the opportunity to discuss their expectations and avoid last-minute surprises. It is more difficult to find common ground after the tenant moves out than before.

This short discussion omits other parties that can become engaged in ownership disputes, such as the landlord's lender and the tenant's lender, but the discussion hopefully offers a few practical measures that landlords and tenants, and their advisors, can take to minimize the risk of protracted, and expensive, disputes over who owns what at critical stages of the landlord-tenant relationship.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions