Two recent opposing decisions of the NSW Supreme Court and the Victorian Supreme Court (Court of Appeal) have highlighted the importance of ensuring that lease provisions regarding the ownership of tenant’s chattels are drafted as accurately as possible. Whilst these decisions are set in the context of wind farms, the take-away message is that lease documents generally should be clear about the parties agreed intention as to ownership of any chattels brought onto the premises.
The two judgments revisit the law of fixtures, of which the key legal principle is that in determining whether particular assets are chattels or fixtures the objective intention of the parties must be ascertained, having regard to the degree of annexation of those particular assets and the purpose or object of the annexation. The main implication being that if a chattel has become a fixture the item becomes part of the land / the landlord’s property and the landlord has legal title to it.
In the AWF Case, the wind turbines and certain associated wind farm infrastructure (‘assets’) were held by the Court to be chattels (and not fixtures/improvements to the land) based primarily on the following factors:
- the lease and planning permit required the tenant to remove the assets
- the tenant was entitled under the lease to renew, replace or remove the assets during the lease term
- the assets were designed and installed in a way that allowed them to be removed without damaging either the assets or the land
- the design working life of the turbines corresponded with the lease term
- the second-hand value of the assets was greater than or equal to the cost of removing them
- in any event, there is specific legislation in Victoria which overrides the common law position and deems the assets as being items owned by the tenant
The decision in the AWF Case contrasts the earlier decision in the SPIC Case where it was held that similar wind farm assets became fixtures (albeit tenant’s fixtures which entitle the tenant to remove the assets from the land). Although the respective Courts’ viewed certain facts differently, one minor but legally significant point of difference was the divergence on whether the removal of the turbines / turbine foundations would cause any substantial damage to the surrounding land.
In addition, a further legally important difference was in relation to the weight that each Court gave to the respective lease provisions. The Victorian judges found it acceptable to place more emphasis on the lease provisions when determining the parties’ objective intentions. However, the NSW judges considered that less reliance should have been placed on the lease provisions.
The above decisions demonstrate the importance of clear drafting in lease documents, to minimise the risk of costly and protracted disputes and the uncertainty in leaving such matters to be decided in Court. If anything, careful and accurate drafting would provide some valuable supporting evidence towards assessing the parties’ objection intentions, particularly within the above context of high value renewable energy development infrastructure.
