Take It or Lose It: Understanding the Trade Fixtures Doctrine in Michigan
Commercial tenants put a lot of work into making their premises functional, attractive, and suitable for their operations and businesses. This often includes installing heavy equipment, large, specialized appliances, storage and shelving, or other “trade fixtures,” or allowing the tenants to install such items. Unlike smaller and moveable items such as tables and chairs, coffee makers, and cash registers, “trade fixtures” become effectively affixed to the leased premises. When a tenancy ends, the hybrid nature of fixtures – as both the lessee’s personal property and a semi-attached part of the leased space – can lead to disputes about their ownership and disposition if the tenant does not promptly remove them.
In Michigan, the “Trade Fixtures Doctrine” governs the rights of commercial landlords and tenants in such situations. Before a commercial lessee invests substantial resources to purchase and install trade fixtures in their space, they should understand their rights and responsibilities as to such property when their lease concludes. Conversely, commercial lessors need to understand what they can, can’t, and should do with fixtures after a tenant otherwise vacates the premises.
What Are Trade Fixtures?
Generally, a “fixture” is any item of personal property that has been attached to leased real property in such a way that it becomes part of the property. Once something becomes a fixture, the tenant has no right to remove it, and it must remain with the property.
However, trade fixtures are an exception to this general rule. As noted, a tenant installs a trade fixture to conduct their business but does not intend it to become a permanent part of the leased premises. For example, a new door would be a fixture that becomes part of the property, but a large pizza oven would constitute a trade fixture that remains the personal property of the tenant/pizzeria owner.
A Tenant Has a Right To Remove Trade Fixtures, But the Clock Is Ticking
Before a lease terminates, whether due to the end of the term, eviction, or other circumstances, a tenant can remove their trade fixtures at will (so long as they don’t damage the leased premises). But once the lease is over, the clock starts ticking on the tenant’s right to enter the premises and take possession of their property.
The Trade Fixtures Doctrine in Michigan provides that a tenant must remove trade fixtures that the tenant has placed on the leased premises within the lease term, or if the tenancy terminates, within a reasonable time after termination. If the tenant fails to retrieve and remove the fixtures in a timely manner after termination, the law presumes the tenant has abandoned the property, such that the landlord can do with it what it will, including selling or disposing of it.
How Long Does a Tenant Have To Retrieve Their Trade Fixtures?
What constitutes a “reasonable time” for a tenant to remove trade fixtures is a fact-specific analysis. The ease with which the items can be removed, the ability of the tenant to gain access to the premises, and whether the tenant has acted in a way that indicates they intend to retrieve their property – these will all play a role in a court’s determination as to the disposition of trade fixtures. While tenants should act quickly to retrieve their property, landlords must not be too hasty to dispose of the tenant’s trade fixtures lest they find themselves on the receiving end of a lawsuit for conversion.
Clearly Address the Disposition of Trade Fixtures in the Lease Terms
Of course, any ambiguities about timing, intent, and rights regarding trade fixtures can be eliminated by including express language in the lease as to such matters.
Like many legal principles, the Trade Fixtures Doctrine is a default principle that only applies if the lease terms do not specifically address the issue. Landlords and tenants can and should negotiate and include provisions in their lease that clearly set forth their respective rights and remedies about removing trade fixtures upon lease termination. They should consist of terms that discuss which particular items can be removed and which must remain on the property, the tenant’s reasonable access to the premises for the purpose of removing their fixtures, and a set date by which the tenant must recover the fixtures before they are considered abandoned.
If you have any questions or concerns regarding the treatment of trade fixtures in your commercial leasing relationship, please contact Deborah Lapin at Maddin Hauser.