Opinion ID: 1355632
Heading Depth: 2
Heading Rank: 1

Heading: Removal of fixtures from leased premises

Text: The threshold issue in trade fixture cases is who purchased and installed the disputed fixtures. If it was not the tenant who installed them, or succeeded in interest to them from a former tenant who did, he or she has no right to remove them. See generally 5 R. Powell & P. Rohan, The Law of Real Property ¶ 651[4], at 57-17 (1987) (hereafter Powell). In this case it was unclear who actually owned the fixtures when they were installed. This confusion was the product of the fact that all of the four partners of AREO, the owner of the Mall, were shareholders of Interior, the tenant, and together owned 95% of Interior's stock. It was difficult to sort out at the construction stage which entity did which work. The building and fixtures were constructed simultaneously. It was not a situation where AREO first constructed the buildings and Interior then installed the fixtures. To further complicate matters, the construction work was performed by Dennis Wise, a partner of AREO and a shareholder of Interior. Because of his close relationship to both entities, there were no written contracts for the construction work. Wise apparently proceeded with the construction without segregating AREO's work from Interior's. This confusion as to actual ownership is not of great importance in this case, because Interior is estopped from asserting ownership over most of the disputed items. The trial court found that several documents represented that items in dispute would be part of the realty which the Bank was entitled to rely on. These findings are not challenged on appeal, and they are, as we explain below, amply supported by the record. Because estoppel was not mentioned by name by the trial court and it is difficult to define the scope of its role in the court's decision, we also note that the record will not reasonably support any decision other than estoppel as to the items hereinafter noted. The Bank loaned money to AREO for construction of the Beaver Brook Mall based on AREO's representations to it that the Mall would include a bulk fuel storage and dispensing facility. The Bank reiterated this belief in its loan commitment letter. [3] The Deed of Trust and Security Agreement provided that on default the Bank would have the power to sell all buildings, structures, improvements, fixtures, and other articles of property now or hereafter attached to the Property... . The Construction Loan Agreement signed by the Bank and by AREO incorporated by reference a document entitled Contractor's Cost Breakdown, Beaverbrook, Wise Enterprises. Included in this cost breakdown was the entry Bulk Fuel ... $205,000. AREO made other representations to the Bank which created the impression that AREO would be the owner of many of the disputed fixtures. In a letter to the Bank AREO stated that it intended to lease out the self-service gas station, bulk and retail fuel facilities, grocery and liquor store, and truck storage barn. AREO also provided an independent appraisal of the proposed project to the bank. The appraisal was based on AREO's ownership of a retail and bulk fuel storage and dispensing facility: The bulk fuel storage and dispensing facility will be comprised of six, 10,000 gallon buried fuel tanks, associated plumbing and piping, three concrete islands with dispensing pumps. There will be high-volume diesel fuel dispensing pumps on one island; a second island with dispensers for regular and unleaded gasoline and diesel fuel; and a third island with dispensers for regular and unleaded gasoline only. There will also be a facility for bulk unloading and loading of heating fuel oil and a 20 foot by 20 foot pumphouse to control the pumps and associated plumbing. The appraisal also included, in its Summary of Cost Approach, these entries: Bulk Fuel Facility $125,000 Tanks and Plumbing Pumps, Canopies, Monitoring Equipment 80,000 Plus: Site Improvements (fencing, exterior lighting, pavement) 200,000 In short, the record supports the trial court's finding that many of the items in dispute were represented to the Bank to be part of the real estate. AREO's representations led the Bank to believe that AREO would own all of the structures and fixtures reasonably necessary to the operation of a bulk and retail fuel facility and a grocery and liquor store. The Bank relied on these representations in deciding to lend money to AREO. [4] The elements of equitable estoppel are the assertion of a position by conduct or words, reasonable reliance thereon by another party, and resulting prejudice. Merdes v. Underwood, 742 P.2d 245, 248 (Alaska 1987). It is a fundamental principle of property law that where one who owns property, with full knowledge of his rights, permits another to sell or pledge it, he will be equitably estopped from asserting his title as against a third person who has acted in good faith and has been misled by the true owner's acquiescence. See Ralls v. Fouraker, 109 Idaho 488, 708 P.2d 893, 896 (1985); Belleville v. Davis, 262 Or. 387, 498 P.2d 744, 749 (1972). In this case Interior had full knowledge of AREO's representations to the Bank. The four members of the AREO partnership owned 95% of Interior's stock. In a situation such as this, the knowledge of the shareholders will be imputed to the corporation. See Keen v. Keen, 113 A.D.2d 964, 493 N.Y.S.2d 636, 638 (1985); Johnson v. Rich, 150 Cal. App.2d 740, 310 P.2d 980, 986 (1957). See also W. Fletcher, Cyclopedia of the Law of Corporations § 809 (1986). Because Interior made no effort to controvert AREO's representations to the Bank, and because the Bank relied on those representations, Interior is estopped from asserting that it was the true owner of the fixtures covered by AREO's representations. The tank farm, the refrigeration units, the lights, the pole for the truck stop sign, and the fence around the property were within the scope of the representations made by AREO to the Bank. The tank farm is an integral part of a bulk and retail fuel facility, as are the lights, the pole, and the fence. Similarly, the refrigeration units are an integral part of a grocery and liquor store. Finally, the water softener must also remain. The trial court found that it is part of the intrinsic water system of the premises. Interior is estopped from asserting ownership of these items. The Bank is thus entitled, under the above analysis, to everything but the kitchen sink. [5] Because this item is not within the scope of AREO's representations to the Bank, its ownership depends on the law of trade fixtures. Interior contends that the kitchen sink/cabinet is a trade fixture, and that it has a right to remove it. Trade fixtures have been defined as property installed by a tenant at his own expense, during the term of the lease, to carry on the business for which the realty was leased. Shell Oil Company v. Capparelli, 648 F. Supp. 1052, 1055 (S.D.N.Y. 1986). See also 5 Powell ¶ 653, at 57-45. Traditionally, a commercial tenant may remove trade fixtures from the leased property so long as he or she does not intend at the time of affixation to relinquish ownership of the item. Id.; 5 The American Law of Property § 19.11, at 40 (1952). In the absence of an agreement to the contrary, courts presume that the tenant did not intend to donate the affixed items to the landlord. See Neely v. Jacobs, 673 S.W.2d 705, 707-08 (Tex. App. 1984). [6] The Restatement (Second) of Property (Landlord and Tenant) approach reflects the modern trend in this area and in our view presents a sound approach to the law of fixtures. Section 12.2(4) would allow the tenant to remove any permissible annexations so long as the landlord and tenant have not agreed otherwise and so long as the freehold can be restored to its former condition. Restatement (Second) of Property (Landlord and Tenant) § 12.2 (hereinafter Restatement). The landlord may require the tenant to post adequate security to ensure restoration. Restatement § 12.2 comment s at 449. See, e.g., Consiglio v. Carey, 12 Mass. App. 135, 421 N.E.2d 1257, 1260 (1981). There is no reason to require a tenant to abandon property he has affixed to the leased premises so long as he can restore the premises to its former condition. [7] Applying this rule to the instant case, Interior is entitled to the kitchen cabinet/sink if it can show that it installed it, did not intend to donate it to the landlord, and could now remove it and restore the premises to their former condition. The trial court granted the cabinet/sink to the Bank based on its conclusion that the unit is not necessary for Interior's business, and therefore is not a removable trade fixture. This reason does not square with the law of trade fixtures set forth above. Regardless of whether the cabinet/sink was necessary for Interior's business, the court should have based its decision on who originally installed the unit, on the parties' intent, and on whether it could be removed and the premises restored.