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February 23, 2015

FIXTURES & FITTINGS – Are these the responsibility of the Tenant or the Landlord and how should cover be arranged?

The issue of responsibility for fixtures and fittings, particularly in tenanted properties has challenged claims people over the years. It has also been addressed by the Chartered Institute of Loss Adjusters (CILA) and was recently reviewed in the context of recent developments including Case Law.

The following is my summary of the position which might help you the Broker when it comes to arranging relevant and adequate cover.

PROPERTY DAMAGE – Does the Landlord or Tenant pay?

In the event of damage to a Landlords or Tenant’s property, four questions should be addressed to determine which Policy meets a claim for damage to an item in a commercial premises as follows:

What is the legal category of the item – i.e. chattel, fixture or improvement?
Is it the Landlords or Tenants i.e. who has primary liability?
Does the insurance Policy in question cover the party’s interest on the basis of primary liability alone?
Is the position modified by the terms of any Lease?
1. What is the legal category of the item i.e. what is the legal position:

In the absence of precedent in this country we are usually persuaded or influenced by precedent in the U.K.

The item damaged or destroyed will fall into one of three categories:

Chattel – is something you pick up, sell or deliver. Something that exists in its own right.

A fixture is a chattel which has become part of the land or part of the premises which may be removable in certain circumstances. “Fitting” is often used in insurance Policies but fitting has no legal standing.

An improvement is a chattel which has become a permanent and irremovable addition to the premises i.e. those items brought on to the premises and which cannot be removed without causing lasting damage e.g. wallpaper or wallplaster.

The question from an insurance perspective is whether it is a chattel or a fixture. In simple terms if it is a chattel it suggests it is the Tenants and if it is a fixture/fitting it is part of the building and thus the Landlords. There are two main tests to determine whether an item is a chattel or fixture.

The method and degree of annexation.
The object and purpose of annexation.
Clearly building methods have developed in the context of affixing and removing objects so that the purpose of annexation is likely to be more decisive than the degree of annexation/affixation. In other words the purpose of bringing an item on to the premises is now more important than how well or not it was fixed to the building.

Recent precedent suggests that if the purpose of annexation is for the better enjoyment of the object itself, it remains a chattel notwithstanding that it might have a high degree of physical annexation to the building.

However if an item cannot be removed without serious damage or destruction to the building or some part of it, there is a strong case to suggest that it has become a fixture/fitting. Notwithstanding this, purpose is the dominant deciding factor for example if timber shuttering is fitted to enhance a building but can be easily removed without damaging the building it may still be deemed a fixture on the basis that its purpose is that of enhancing the building as a whole.

An important U.K. Case, TSB v Botham (1996) gives critical guidance in that both the purpose of the item and the purpose of the link between the item and the building must be considered, “if the item is intended to be permanent and afford a lasting improvement to the building, it will become a fixture. If the attachment is temporary and is no more than is necessary for the item to be used and enjoyed, then it will remain a chattel. If the item is ornamental and its attachment is simply to enable the item to be displayed and enjoyed, that will often indicate that the item is a chattel”.

The purpose of annexation/attachment would appear therefore to be the guiding factor.

What about a “functional article” which is something which has a function of its own and will be regarded as a chattel, almost irrespective of the degree of annexation/affixation. An example would be a telephone system which may comprise of a main processor housed in a cabinet screwed to a wall. The system is affixed on the basis that the wiring will probably be abandoned in moving if not the complete system. Affixation is necessary for its efficient use and better use of the telephone system and does not enhance the building/realty, on this basis it is clearly a chattel.

What about a suspended ceiling in an office building? The ceiling is clearly to enhance the premises, its purpose therefore makes it a fixture.

In summary if something with its own identity and function is brought on to a premises, the purpose being for the better use of the item then it is a chattel. However if it is brought on to the premises to enhance the premises then it is a fixture/fitting and if the degree of affixation and incorporation in the premises is such that it cannot be removed without causing significant damage it is an improvement. Anything brought on to the premises will therefore fall within one of these three categories.

2. Is it the Landlords or Tenants i.e. who has primary liability?

The legal position has been that once a fixture had become affixed to the land it became part of the land. This placed restrictions on tenants and the Courts subsequently recognised the rights of a tenant to remove something he had brought on to the premises leading to the distinction between Landlords and Tenants Fixtures. Tenants Fixtures were those in respect of which the Tenant was a limited owner and could remove and Landlords Fixtures were those which a Tenant could not remove.

During the period when a Tenant can legally remove his fixtures they remain the Tenants property but once that period has expired then all fixtures which remain become the property of the Landlord. If the Tenant leaves before expiry of the Tenancy/Lease and leaves the fixtures insitu they become the Landlords as they are part of the land and the only person with the right to remove them did not do so.

Generally the legal position is that fixtures belong to the party who installed them and chattels belong to the party bringing them on to the premises. Improvements belong to the Landlord irrespective of whether installed by the Tenant or the Landlord although the Tenant will retain an interest in them. This is dealt with in the context of the insurance position and indeed the Lease position later on.

The position is complicated where a Tenant replaces a previous Tenant. Any improvements made by the first Tenant will be the property of the Landlord but this may be modified in the context of any payment by the second Tenant for these improvements. What happens if the new Tenant removes existing Landlords Fixtures such as a suspended ceiling then clearly a new suspended ceiling installed by the new Tenant becomes the Landlords. That is why a Lease/documentation needs to be reviewed in the context of change of tenancy and any previous agreements between the first Tenant and the Landlord. However as a general rule, fixtures installed by the new Tenant remain his property and improvements remain the Landlords.

The distinction between fixtures and improvements has significance in the Landlord and Tenant situation and has a bearing on the insurance position.

3. Does the insurance Policy in question cover the party’s interest on the basis of primary liability alone?

Insurable interest is clearly the guiding aspect in terms of establishing what represents an indemnity. A person must have a financial interest in the property affected by the insured contingency. If you own something you insure it, and if you have contractual responsibility you can insure that interest or if you do not own something but will be financially prejudiced by its destruction etc you can insure it to the extent that you will be prejudiced/affected.

Insurable interest can be considered as follows:

(a) Chattel. Insurable interest can arise in terms of ownership, contractual responsibility (leasing or hiring etc).
(b) Fixtures. As outlined they become part of the buildings once affixed and will be covered by a Buildings Insurance Policy.
(c) Improvements. Same as fixtures and really only relevant in the context of a Landlord and Tenant situation.
The position is quite clear where an Owner/Occupier is involved:

Owner/Occupier – chattels are dealt with under a Contents Policy.
Owner/Occupier – fixtures are dealt with under a Buildings Policy.
But what is the position under a Landlord and Tenant situation?

The Designation Clause is relevant i.e. it will be given the same interpretation under the insurance Policy as in the Insured’s Financial Accounts.

The complexity arises when it comes to dealing with fixtures.

A Landlords Policy will have a definition of “buildings” to include “Landlords Fixtures & Fittings” which are those fixtures installed originally by the Landlord and those which have become his property as a result of a previous Tenant abandoning them etc. There is no cover for Tenants fixtures.

Tenants Policy covering trade contents will include “Fixtures & Fittings but excluding Landlords Fixtures & Fittings”.

Some Retail Trade Policies will include specific cover for shop fronts or trade fixtures peculiar to that occupation.

Invariably the Tenant has no insurable interest in the Landlords Fixtures but a specific term of the Lease may compel the Tenant to insure the Landlords Fixtures either in joint names or on behalf of the Landlord in which event he has an insurable interest to the extent of his legal, primary liability.

In the event of a claim it is a matter of determining which party has the primary liability and then establishing if insurance cover is in force to cover the insurable interest in the property in question.

Where Tenants improve a leased/rented unit, the improvement (wallpaper, plaster etc.) becomes an integral part of the building thus becoming the property of the Landlord. However the Tenant has use and enjoyment during his tenancy and if damaged the Tenant is financially prejudiced. As a building item improvements fall within a Landlords Policy but the Tenant is free to insure them. Tenants improvements are unlikely to be included within the definition of Trade Contents and it must therefore be specifically mentioned in the definition. Alternatively a separate item for “decorations and Tenants improvements” can be arranged.

The Tenants cover is essentially a contingency Policy to operate where the Landlord does not reinstate. In other words where the Landlord chooses not to reinstate improvements already in existence.

Where there is dual insurance, in their paper, CILA suggest that the rules on contribution will not apply as there is no contribution if the loss is in respect of the buildings and its fixtures and fittings insured in the name of the Tenant and such insurance is restricted to a part or part of the premises demised to him i.e. if the Tenant insures only part of the premises but the Landlord the whole, there is no contribution. The scenario may arise where the damage is significant and the Tenant decides to relocate permanently. If the “Improvements” are insured by the Tenant under a Policy subject to the “Reinstatement Memorandum” this allows the Tenant to reinstate elsewhere. The Tenant might therefore claim the cost of reinstating the “Improvements” in the new premises and at the same time the Landlord may have been paid for the cost of reinstating the premises to its original condition including these “Improvements”. On this basis the “Improvements” could have been paid for twice and as there is no contribution between the Insurers and each has to satisfy their obligation to pay their Policyholder. The argument to overcome this problem is that the Tenant’s loss arises only from the decision not to return to the original premises as if they did so they would find the “Improvements” had been reinstated for their continued use etc at the Landlord’s expense or that of their Insurers. The “Reinstatement Memorandum” contains a proviso in relation to the right to reinstate elsewhere that in doing so Insurer’s liability must not be increased over that which would have pertained at the risk address. As stated the Tenant’s Policy on Tenants Improvements is effectively providing a contingency cover as the “Improvements” belong to the Landlord who is the primary interest and the Tenant need only insure against the possibility the Landlord does not and cannot legally or contractually be made to replace the items. If the Landlord does replace then the Tenants suffers no loss and cannot claim. This situation cannot change simply because the Tenant does not want to return to the premises and it is that decision and not the damage which gives rise to the Tenant’s loss. In this particular scenario the Tenant’s decision not to return to the original premises is the dictating factor which gives rise to the Tenant’s loss and there is no reason why his Insurer should pay for this.

If the Tenant decides to stay but the Landlord decides not to reinstate then the contingency reference under the Tenants Policy comes in to play so that the Tenant has a valid loss under his own Policy. Subrogation may also arise where the Landlords Lease had compelled him to reinstate but he failed to do so in that the Tenant’s Insurers would indemnify for the “improvements” and attempt a recovery against the Landlord.

4. Is the position modified by the terms of any Lease?

The Lease does not affect the status of an item i.e. a chattel, fixture or improvement but it can change the primary liability that would have existed without the Lease relative to insurable interest.

The Lease will describe the building and address of the building/premises and may refer to “together with all additions and alterations thereto” which effectively dictates that improvements are dealt with as part of the “building”.

Does the Lease allow the Tenant to make non-structural alterations or additions with the consent of the Landlord which will help in determining what was added by the Tenant? Is the Tenant required to remove such additions before expiry of the Lease?

What does the Tenant have to do on completion of the Lease i.e. replace Landlords Fixtures and remove Tenants Fixtures etc. The general intention is that items that have become part of the building will be yielded up to the Landlord at the end of the Tenancy.

One of the most important Covenants/Clauses is that relating to insurance. The Lease will usually state that the Landlord will keep insured “the building” as defined and in the event of structural damage the Landlord will apply such monies received from Insurers in reinstatement etc. This should avoid the previous scenario where the Landlord chooses not to reinstate.

In the event that the Lease requires a Tenant to insure the building, a Building Policy is required but this will only cover what is defined as “the Buildings” and not Tenants Fixtures in respect of which additional cover will be required.

Where there is no Lease but a license it is unlikely that insurance issues will be dealt with and the question then reverts to that of primary liability i.e. what is the legal position in terms of ownership/responsibility.


The quandary here is what falls under “Contents” and what falls under “Buildings” in terms of Policy cover. In terms of the degree and method of annexation, fitted kitchen units fall under the “buildings” section but what about appliances, i.e. white goods housed in these units? The Court of Appeal in the U.K. (TSB v Botham) stated that these items are not fixtures but chattels on the basis that their degree of affixation is slight and such affixation is to better enjoy the use of the item. They are readily removable and on doing so retain their function and therefore meet the requirement of a chattel and should be insured under the Contents Policy. Similarly carpets, curtains and blinds are chattels. Their fitting and affixation is for the better enjoyment of the premises and not to permanently enhance it. A foam back carpet or marmoleum covering is normally glued which is a cheap method of fixing but does not change the item to a fixture. Apparently the only exception according to the judgement is carpet tiles glued to a concrete screed where damage will be done on removal.


In conclusion the four basic questions to answer to determine which Policy meets a claim in a commercial premises are as follows:

What is the legal category of the item – chattel, fixture or improvement?
Is it the Landlord’s or Tenant’s i.e. who has primary liability?
Does the insurance Policy in question cover the party’s interest on the basis of primary liability alone
Is the position modified by the terms of any Lease?

Each question should be dealt with in the order shown and if any question does not apply for example no Tenant/Landlord or no Lease it is omitted and the remaining relevant questions should be answered in sequence which should give the correct answer to the issue whether items of expenditure are the responsibility of the Tenant or the Landlord. I hope the foregoing is of interest and will serve as a useful reference document. CILA have published a more comprehensive paper on their website. I suggest the approach on all these matters is akin to a VAR (Value at Risk) type of approach in that responsibility (and indeed value) is established at the outset and the approach is that which will be taken by a Loss Adjuster in the event that your Client suffers loss or damage i.e. who is responsible for what and what is the value/extent of that responsibility in financial terms.


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