Commercial Real Estate eCase Note

October 8, 2013

The Nuts and Bolts of Butler Buildings – Determining what is and what isn’t a “fixture”

Newfoundland and Labrador Housing Corp v. Humby, [2013] N.J. No. 20

Drive through any commercial or industrial subdivision and you are bound to see a number of pre-engineered corrugated steel buildings known as “Butler” buildings being used in all sorts of commercial applications. These buildings, sought after for the ease by which they can be acquired and assembled on site, are typically purchased and shipped in several segments and bolted together with a concrete slab as their base.

Butler buildings raise an interesting legal question for those involved in buying, selling or leasing commercial real estate, namely, whether these buildings constitute “fixtures” that form part of the land, and are therefore not removable, or whether they are chattels, which can be removed at the discretion of the chattel owner.   In Newfoundland and Labrador Housing Corp v. Humby, the Newfoundland Court of Appeal had to address this very question.

Humby had erected a Butler building on land leased from the Newfoundland and Labrador Housing Corporation (NLHC). When the lease expired, Humby attempted to remove the building in order to erect it at another site where he had secured a tenant who would lease the building. The NLHC sought an injunction to prevent Humby from doing so, claiming the building was a fixture on the NLHC’s land and could not be removed without their consent. At trial, the judge agreed with the NLHC and found that the Butler building was a fixture, and was not removable by the tenant, Humby.

The trial judge noted that, from a practical point of view, in order for the building to be removed it had to be disassembled. In doing so, an integral part of the building structure – the foundation and floor – could not be disassembled and moved along with the other components.  The trial judge examined several other factors, including the method of construction, the manner within which the building was set on the concrete slab, and the intended use of the building. He concluded that a Butler building constitutes a fixture that is not removable.

On appeal, the Newfoundland and Labrador Court of Appeal found in favour of Humby, and reversed the trial judge’s decision. In its analysis, the Court of Appeal employed two comparators – conventional buildings and tents – when determining if a Butler building would be considered a fixture. The Court noted that a conventional building becomes part of the property because “of the permanent way it is attached to the land and because that is the purpose of conventional buildings.”  Tents, on the other hand, do not become part of the property “as [they are] not permanently attached to the land and because it is the purpose of tents to be set up, taken down and set up elsewhere, as needed.”

When the Court of Appeal considered the legal test to be applied to the “Butler building”, they likened it to a tent rather than a conventional building. They stated that the building is designed to be dismantled and moved, and that the nature of its attachment to the land is such that it “can readily be removed” and the purpose of “using such a building is so that when you want to, you can move it.”

The Court went onto address the apparent defective reasoning of the trial judge. They relied on English cases that stated that the concrete foundation to which the building is connected is to be treated as a separate unit from the superstructure. Thus, the concrete slab is a non-removable fixture, while the building itself is separate and removable by the tenant.

The Court found that the fact that the slab is left behind “does not affect the mode of annexation [or attachment] of the building itself.” Also, the concern of the trial judge around the disassembling of the building being necessary for its removal was said to be immaterial, because the disassembling process is simply inherent in “the nature of ‘Butler buildings’.”

This case highlights how difficult it can be to determine whether a building, such as a Butler building or other type of modular structure, will be considered a fixture. If you are buying or leasing land with a Butler style building, you should always consider if the specific building you are buying or leasing fits into this category. If it does, you need to ensure you have covered off any potential issues with removing the structure at some point in the future. It is always best for the parties involved to mutually agree from the onset as to how a building like this will be treated.

Key Takeaways:

1) Determining what is or isn’t a fixture is not always an easy task. The size of the structure isn’t the only factor; you also need to consider how the structure is affixed to the land and for what purpose.

2) Be cognizant of items that can be easily removed or deconstructed when entering into a lease or a purchase agreement for land and buildings. If you intend on constructing a Butler building on leased land, ensure the parties clearly understand the terms by which the building can or cannot be removed.

3) If you are unsure an item is a “fixture” or detachable, come to a mutual understanding with the other party up front regarding what is actually being purchased or leased. This will help in avoiding situations such as the case above.

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