Likely because the application of the law is uncertain, commercial leases generally have detailed clauses dealing with the question of when a piece of equipment or an improvement installed in a premises becomes a fixture or remains a chattel. The answer matters as fixtures, in law, are considered to be part of the land and, at the end of a lease, ordinarily would revert to the landlord with the land.
Last year, I blogged about the relevant legal test and its application to equipment installed at a ranch, in part to demonstrate how difficult and apparently whimsical its application could be. Even though lease terms have evolved to avoid the need go to court over such issues, the question is still one of great importance on occasion. For example, taxing statutes often rely on the value of “land” to calculate taxes. If the land includes valuable equipment, the taxes payable will be far greater.
Just such a case recently came before the BC Court of Appeal. It involved machinery and equipment installed at a pulp mill. The pulp mill went into bankruptcy. Subsequently, Zellstoff Celgar Ltd. purchased the assets of the pulp mill from the bankruptcy trustee. The question was ‘what amount of property purchase tax was payable?’.
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