Buying business with fixtures and chattels
When buying business and thinking about chattels, one may think of such things as moveable personal property such as clothes, furniture, and appliances as opposed to more permanent fixtures such as homes and buildings.
Fixtures and chattels refer to the things that are included in the sale of the business/home or take with you when you leave. In some cases, chattels that have become a fixture get removed by a third party who holds the title to that chattel. This can raise issues as to whether an item is a chattel at law or a fixture at law.
Chattels What to Consider – Hire Purchase
To give you an example when a chattel is hired under a hire-purchase agreement and the hirer, who has the possessory title, affixes the chattel to land, the item is usually seen as a fixture when buying business.
This may cause some injustice as in this type of situation where the hirer wants to reclaim the goods, but now those goods are seen as a fixture.
So once again, under the law, we look at the intention of the affixer, the object of the annexation, and the purpose of annexation.
Basically, if the thing to be removed will cause damage to the land or property, which it is affixed or if the removal is difficult without causing damage, then an interpretation that the item is a fixture may be more appropriate. However, the degree of annexation is not necessarily the decision. It may be persuasive to a great extent. This is a good starting point when buying business.
Nature of Chattels
The nature of a chattel is another consideration when determining whether the item is to be classified as a chattel or a fixture. For example, was the thing intended to be a decoration to give a room a certain appearance, was the thing intended to become in unison with the rest of the room if this is the case it may be considered a fixture.
So, the stronger the annexation the more chance that the thing will be considered a fixture. But remember last week we discussed intention.
This brings me to the case of Pegasus Gold Australia v Mesto Minerals (Australia) LTD (2003) where the court considered whether equipment used to repair mineral processing materials were fixtures or chattels. The court held that there was a common intention between the parties. The subjective intention is the key to this case. If this intention was not likely or there is not enough information available to determine when the court has to apply an objective intention. The court will examine such things as can the chattel be removed without causing damage or any possible economic consequences that would follow.
The court held that there was a common intention between the parties. The subjective intention is the key to this case. If this intention was not likely or there is not enough information available to determine when the court has to apply an objective intention, the court will examine such things as can the chattel be removed without causing damage or any possible economic consequences that would follow.
When we look at the whole picture here we must not just consider the subjective intention but also the matter of viewing the intention objectively considering the surrounding circumstances.
Agricultural fixtures are an exemption at common law. Why I hear you ask? Well, its legislation under the Property Law Act 1974 (Qld). The general rule is that if a chattel affixed without permission is that without an agreement to the contrary, the person who annexes chattels to an owner’s land has no right of removal. For example, where a company built a winery on land owned by the vineyard company adjacent to its land the winery and equipment became fixtures, not chattels.
Another case is where the purchaser under a contract of sale entered possession for the property and made improvements without the vendor’s approval. And contrary to the agreement, the contract fell through due to the vendor’s rescission. The plaintiff (purchaser) was unable to get restitution because the court was not able to find any unjust enrichment. Due to the plaintiff’s breach of the contract, in other words, the purchaser lost the case and could not claim the improvements.
So I’ll leave you to think, when buying a business always look at the annexation, intention and subjective of the item before signing any contract. Be sure to seek your own proper independent legal advice before buying any business.
Next time on buying business, we will discuss Restraints on Alienation and the Rule Against Perpetuities (interesting I hear you say). Until then, if you have any questions or observations about this general information, please leave your comments below.
Author: Kathleen Dale, Business Advisor and Founder of Compass Business Advisory.
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