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REAL ESTATE 51: Dispute regarding the ownership of a reception desk at the end of a commercial lease.

This case arises out of a dispute regarding the ownership of a reception desk and color bar at the end of a commercial lease for a beauty salon in Michigan. SOF was the owner of the property leased by Salon. Bocks was the contractor for SOF. He negotiated the lease in question on behalf of SOF and built and installed the color bar and reception desk in dispute.

The Salon wanted to expand in 2012 but did not have the funds to construct a large space with the necessary equipment.  Ultimately the Salon signed the lease at issue in this case with SOF on July 3, 2012.

The lease contained the following provision: SECTION 4. IMPROVEMENTS TO THE PREMISES. Prior to August 1, 2012, Landlord, at Landlord’s sole cost and expense, shall perform the work in the new Premises detailed in Exhibit B (“Landlord’s Work”), attached hereto. In no event shall the cost to Landlord of the improvements to premises exceed Sixty Thousand Dollars ($60,000). Other than Landlord’s Work, Tenant shall accept the Premises in its “as-is” condition. It is understood and agreed that Landlord shall have no obligation for making any further improvements to the Premises. It is understood and agreed that Tenant shall not make, or permit to be made, any alterations to the Premises without Landlord’s prior written approval of its plans and specifications. Tenant’s plans and specifications shall be in compliance with Landlord’s design criteria for the Center and in compliance with applicable building codes. Any additions to, or alterations of, the Premises, except trade fixtures, shall upon expiration or termination of the Lease Term become a part of the realty and belongs to the Landlord. Tenant shall pay promptly all persons furnishing labor or materials with respect to any work performed by Tenant or its contractors on or about the Premises. In the event any mechanic’s or other lien shall at any time be filed against the Premises by reason of work, labor, services or materials performed or furnished to Tenant, Tenant shall forthwith cause the same to be discharged of record or bonded to the satisfaction of Landlord.

Additionally, the Salon signed a personal guaranty agreement for $60,000, guaranteeing rental payments up to that amount. The Salon operated in the rented space for seven years.

In July 2017, the salon closed. The Salon owner and her husband paid to have assets—including the color bar and the reception desk—removed from the premises before the end of the lease.

At issue is whether the color bar and reception desk were the Salon’s trade fixtures. The court found that SOF owned the color bar and reception desk because they were fixtures attached to the premises.

The term ‘fixture’ necessarily implies something having a possible existence apart from realty, but which may, by annexation, be assimilated into realty.

Property is a fixture if the following criteria exist: First, annexation to the realty, either actual or constructive; second, adaptation or application to the use or purpose to which that part of the realty to which it is connected is appropriated; and third, intention to make the article a permanent accession to the freehold.

A trade fixture is a fixture installed on a leasehold by a tenant that the tenant may remove at the termination of the lease.

After considering the plain language of the lease and its attached documents, the court conclude that the reception desk and color bar were fixtures that belonged with the realty after the termination of the parties’ lease.

And § 4 of the lease further states that any additions or alterations to the premises, with the exception of trade fixtures, shall become part of the realty and belong to SOF at the termination of the lease. Thus, the lease contemplates that the reception desk and color bar are not trade fixtures, because they are part of the work the landlord, SOF, was obligated to undertake, and which was to remain the landlord’s upon termination of the lease.

Finding the right attorney to assist with the purchase, sale or acquisition of real estate is critical.  Are you signing a commercial lease in Michigan?

Seek the advice of an experienced and skilled real estate litigation attorney at Aldrich Legal Services in Plymouth.  Aldrich Legal Services can review your lease agreement.

Contact Aldrich Legal Services

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