TS Sheerness Limited (TSS) was the tenant of a steel recycling plant under a 125 year building lease and Peel Land and Property (Ports No.3) Limited (Peel) was the current landlord. Convinced that the tenant intended to strip the property of valuable plant in order to sell it, Peel applied for a declaration that it was the legal owner of the whole plant.
The ownership of the plant, however, was not evident from the lease. The demised property was defined by reference to the “site” together with the “buildings” erected on it but “buildings” was not defined, leaving it unclear whether the demised property included tenants’ fixtures installed within the Buildings. The tenant had covenanted:
Peel argued that the alterations covenant prohibited TSS from removing plant during the term for the purpose of selling it.
The judge ruled that most of the items of plant were either not annexed to the land (and so remained tenants’ chattels) or tenants’ trade fixtures. In both cases, TSS was entitled to remove them during the term. The judge said that very clear wording was required to oust a tenant's common law right to remove its trade fixtures and the alterations covenant did not meet that threshold.
On appeal, Peel argued that the alterations covenant was sufficiently clear and that, in any case, there was no general rule that especially clear words are required to override the common law. The Court of Appeal agreed.
TSS had relied on Woodfall on landlord and tenant which says that, if a landlord wants to restrict a tenant's ordinary right to remove its trade fixtures, it must say so in plain language. The court examined the origin of that statement, which was propounded by only one appeal judge in Lambourn v McLellan  2 Ch. 268 and declared it (probably) obiter and not capable of being elevated to a general principle of law.
TSS argued that the alterations covenant did not mention fixtures at all, in contrast to other lease covenants, leaving it free to remove them during the term. Acknowledging the inconsistency the court nonetheless ruled that:
The Court of Appeal has previously ruled on this issue, in Lambourn, in favour of the tenant, and in In re British Red Ash Collieries Limited  1 Ch. 326, where the landlord won. In both cases, the court felt able to reach a decision on the wording in the leases. In Peel, the semantic arguments could probably have gone either way, which is possibly why the Court of Appeal fell back on the commercial purpose test.
This article was published in Solicitors Journal in March 2014.