Opinion ID: 2570200
Heading Depth: 5
Heading Rank: 1

Heading: The leases' words support NPPI's reading.

Text: In determining whether ambiguity exists, we first turn to the lease language. Yakutat and Sitka Sound entered into the first relevant agreement, entitled License Agreement, in 1986. This 1986 lease was to end December 31, 1988. It applies to the renovations of the processing plant's freezing capacity, because Sitka Sound undertook those renovations in 1987. It appears that Sitka Sound purchased the other disputed items at the processing plant from the previous lessee in 1987, making these items subject to this lease. Section 12 of this agreement stated in full: Licensee may from time to time, and at its own expense, make or construct such additions to or improvements or alterations in and about the licensed premises and its appurtenances, whether structural or otherwise, and install such machinery, equipment and facilities as it may consider proper or advisable in connection with the use and operation of the premises, except that no structural alteration to any part of the licensed premises may be carried out without the prior written consent of the City. Licensee shall have the right at the termination of this license to remove any such machinery, equipment, and facilities belonging to it; provided, however, that after such removal Licensee shall, at its sole expense, restore the licensed premises to their condition prior to the installation of such machinery, equipment and facilities. Any structural improvements and additions made to the licensed premises by Licensee during the term of this license shall be preceded by mutual agreement of the expected useful life of the particular improvement or addition which shall under no circumstances exceed twenty (20) years, and shall stipulate that City has first option to purchase the said improvement or addition at cost based upon straight line depreciation over the remaining agreed-upon useful life of the improvement or addition. All property belonging to Licensee placed upon the licensed premises, whether such property consists of furniture, machinery, equipment, appliances, fixtures or otherwise, and whether property is fixed to the real property by means of piping, wiring, bolts or otherwise, shall belong solely to Licensee and remain so subject to the right of removal herein provided but in the event of removal, the premises shall be restored to their original condition by Licensee. (Emphasis added.) Section 13 stated, in part: Licensee shall return the licensed premises to City in the same condition in which received (or, if altered by Licensee, the licensed premises shall be returned in such altered condition), reasonable wear and tear, and use thereof ... excepted. Sitka Sound and Yakutat entered into a successor lease in January 1988; this 1988 lease was in effect through December 31, 1992. It applies to the upgrades at the little dock icehouse, because Sitka Sound appears to have carried out that upgrade in 1988. This lease contained sections virtually identical to the sections quoted above with only one material difference: the first paragraph of section 12 of the 1988 lease stated: Lessee shall not make or construct any additions to or improvements or alterations in and about the leased premises and its appurtenances, whether structural or otherwise, or install machinery, equipment and facilities without the prior written consent of Lessor.... [A]ll such work shall be at the expense of Lessee. Subject to Section 33 [Option to Renew], Lessee shall have the right at the termination of this lease to remove any such machinery, equipment and facilities belonging to it; provided, however, that after such removal Lessee shall, at its sole expense, restore the leased premises to their condition prior to the installation of such machinery, equipment and facilities. The rest of section 12 was identical in substance to section 12 of the 1986 lease. In 1992 Sitka Sound and Yakutat entered into a new lease; its provisions were identical to those of the 1988 lease. Mayor Larry Powell signed the 1992 lease for Yakutat; Harold Thompson, who then owned Sitka Sound, signed for Sitka Sound. None of the disputed items appears to have been installed during the term of this lease; it is therefore not directly applicable. In 1997 NPPI and Yakutat entered into a new lease; its section 12 differed from the corresponding sections in the prior leases. It stated: Lessee may, in its sole discretion, make alterations, additions or improvements to the leased premises at Lessee's expense.... All property belonging to Lessee placed upon the leased premises, whether such property consists of furniture, machinery, equipment, appliances, or otherwise, and whether such property is fixed to the real property by means of piping, wiring, bolts or otherwise (hereinafter collectively referred to as trade fixtures) shall belong solely to Lessee, and, at the expiration or sooner termination of this lease or any renewal or extension thereof, Lessee shall have the right to remove such trade fixtures, provided, however, that after such removal Lessee shall, at its sole expense, restore the leased premises to its condition prior to the installation of such trade fixtures. If at such expiration or termination of this lease or any renewal or extension thereof, Lessee elects to sell its trade fixtures, or any portion thereof, Lessee shall, in such event, give the City a right of first refusal to purchase the trade fixtures or portion thereof which Lessee elects to sell at a price equal to the fair market value of such trade fixtures, f.o.b. Yakutat. Section 13 of the 1997 lease was identical to the corresponding sections in the prior three leases. The 1997 lease thus gave Yakutat a right of first refusal with respect to trade fixtures, while the previous three leases gave Yakutat an option to purchase structural improvements and additions. It is undisputed that section 12 of the 1997 lease applies only to improvements or additions made after it became effective, and that none of the disputed items falls into this category. Therefore, the right of first refusal the 1997 lease gave Yakutat with regard to trade fixtures does not apply to the disputed items. But it is useful to examine the 1997 lease because it sheds light on what the parties meant by trade fixtures, as opposed to structural improvements and additions. As a starting point we recognize that the Restatement (Second) of Property § 12.2(4) states that [e]xcept to the extent the parties to a lease validly agree otherwise, the tenant is entitled to remove permissible annexations he has made to the leased property... if the leased property can be and is restored to its former condition after the removal. [16] In Interior Energy, we stated the traditional principle that a tenant may remove trade fixtures if (1) it installed or affixed them to the premises; (2) it did not intend to donate them to the landlord; and (3) the property may be returned to its former condition. [17] With regard to the second factor, we stated that [i]n the absence of an agreement to the contrary, courts presume that the tenant did not intend to donate the affixed items to the landlord. [18] The parties agreed that Yakutat had the first option to purchase structural improvements and additions. We therefore must decide what that phrase means and what items it includes. We have found no case discussing an identical phrase. Cases discussing related phrases provide some guidance. A New York court has defined a structural change as one that affects a vital and substantial portion of the premises, as would change its characteristic appearance; the fundamental purpose of the erection; or the uses contemplated, or a change of such a nature as would affect the very realty itself, extraordinary in scope and effect, or unusual in expenditure. [19] Courts have held the following to be structural changes or improvements: (1) new electrical outlets and wiring, new pipes, and fire-retardant walls; [20] (2) a block wall; [21] (3) new doors, a canopy extension, and a brick fascia; [22] (4) an altered sewer system; [23] (5) fire-proof walls; [24] (6) fire-proof paneling, elevator doors, and handrails; [25] (7) fire escapes and fire-proof partitions; [26] (8) flooring changes; [27] (9) improved beams, columns, connections, and shear walls; [28] (10) a storage shed, new door openings, and a concrete pad to support storage tanks; [29] (11) a new floor and surface flooring; [30] and (12) central heat and hot water. [31] The court in Shell Oil Co. v. Capparelli defined trade fixtures as property the tenant installed at his own expense, during the term of the lease, to carry on the business for which the realty was leased. [32] It held that oil storage tanks installed in the ground and covered with concrete were trade fixtures. [33] In Consiglio v. Carey a Massachusetts court had to determine who owned a walk-in freezer, a compressor that supplied the cold air to the freezer, two air conditioners, a dishwasher, and a bar. [34] Consiglio, the tenant, had purchased the dishwasher from a prior tenant, who had installed it, and Consiglio had installed the other items. [35] These were all large items, and some required that the building be modified before they could be installed. [36] The court stated that the right to remove an item depended on the effect on the property of installing and removing the item; an item could be removed if its removal (1) caused no material injury to the estate and (2) would not make the item lose its character or value as personal chattel. [37] The court held that the tenant could remove all of the trade fixtures, which included all of the items except the dishwasher, because the fixtures satisfied the two conditions above; it remanded as to the dishwasher. [38] These cases distinguish between structural improvements and trade fixtures based on the item's relationship to the realty. Structural improvements are more closely connected to the building itself than are trade fixtures; structural improvements have little use when not incorporated into a building. Trade fixtures, on the other hand, while sheltered by a building, do have theoretical use outside it. While many, if not all, of the structural improvements listed in these decisions would be considered trade fixtures as Shell Oil defined that term, structural improvements bear a closer tie to the building than do fixtures. Yakutat's 1986, 1988, and 1992 leases distinguish between structural improvements and additions and machinery, equipment, and facilities; the 1997 lease refers to the latter as trade fixtures. The items in dispute here do not fall squarely within the structural change definition set out above, because they did not change the structure's characteristic appearance or fundamental purpose. The structure remains a large building designed to house machinery, and it continues to be available for any purpose for which it could have been used before Sitka Sound installed the items. The disputed items do fall within the definition of trade fixtures stated above. [39] Sitka Sound installed them at its own expense, during the term of the leases, to carry on its fish processing business. Nevertheless, the fact these items are trade fixtures is not determinative, because many items deemed in the cited cases to be structural changes fall under the definition of trade fixtures, and are not structural changes. Therefore, in addition to this definitional factor, we also consider the similarity between the disputed items and the examples from the cited cases. The items in dispute here fall closer to the cited examples of trade fixtures than to the examples of structural improvements. Yakutat's argument that NPPI's interpretation of structural improvements would render the option language superfluous is appealing, but not entirely convincing. One could imagine the tenant removing the kinds of items listed in the structural improvement cases cited above, for example, handrails, fire-escapes, doors, or even electrical wiring. These items would be virtually useless without a building in which to put them, but the tenant could nevertheless remove them and install them in a new building. Thus, NPPI could also have attempted to remove items that are indisputably structural improvements or additions and install them in another fish processing plant. That is what it argues it has the right to do, and what it threatened to do before litigation commenced. Therefore, we cannot say that the option language is rendered superfluous. The leases' language, as illuminated by case law, consequently tends to support NPPI's argument that the disputed items are not structural improvements or additions, and are therefore not subject to the option to purchase.