Franchisee Real Estate Lease: TRADE FIXTURES

A trade fixture is a piece of personal property that a tenant attaches to the leased premises for the specific purpose of conducting their business or trade.

Contact Neufeld Legal PC for franchising legal matters at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

The complexity of the lease agreement for the commercial real estate that is used in the franchise operation can very easily equal, or even surpass, that of the franchise disclosure document and the franchise agreement, such that retaining the legal services of an experienced lawyer to decipher, explain and negotiate the commercial lease agreement and its schedules. And for over 25 years, we have been working with business owners, including franchisees, to understand and deal with commercial lease agreements that have been presented by landlords and are foundational to their business operations. To gain the most from our legal analysis and advice as to the commercial leasing arrangement, a franchisee would be well served to understand some of the most significant commercial leasing terminology, which we have undertaken to provide you with in-depth analysis.

With respect to commercial real estate leases, a trade fixture is a piece of personal property that a franchisee (tenant) attaches to the leased premises for the specific purpose of conducting their business or trade. While fixtures in general are permanently attached to a property and become part of the real estate, trade fixtures are a key exception. The law recognizes that these items, even if they are physically attached to the building, remain the personal property of the tenant.

The distinction between a trade fixture and a regular fixture (leasehold improvements) is crucial.

• Fixture/Leasehold Improvement: This is an item that is permanently attached to the building and is intended to enhance the building itself, making it more valuable or usable for any future tenant. Examples include:

  • Built-in shelving or cabinetry.

  • Structural changes like new walls or permanent flooring.

  • HVAC systems, electrical wiring, or plumbing.

These items generally become the landlord's property upon installation and cannot be removed by the tenant at the end of the lease.

• Trade Fixture: This is an item attached by the tenant specifically for their unique business. The primary intent is to benefit the tenant's trade, not to permanently improve the building for all tenants. Examples include:

  • In a restaurant: A commercial oven, walk-in freezer, or cooking hood.

  • In a retail store: Display cases, counters, and specialized shelving units.

  • In a dentist's office: A dental chair, X-ray machines, and specialized cabinetry.

  • In an auto repair shop: Lifts and diagnostic equipment.

The tenant's rights regarding trade fixtures are not absolute and are subject to certain conditions, which are often spelled out in the commercial lease agreement.

• Right of Removal: A tenant has the right to remove their trade fixtures at the end of the lease term. This right is based on the legal presumption that the items belong to the tenant.

• Removal Must Be Timely: The tenant must remove the trade fixtures before the lease expires or within a "reasonable time" after the lease ends, if circumstances prevent timely removal. If the tenant leaves the trade fixtures behind, they risk the items being considered "abandoned property" which then becomes the landlord's property.

• No Significant Damage: The removal of the trade fixtures must not cause significant or material damage to the leased premises. The tenant is responsible for repairing any damage that does occur, such as patching holes or repairing a floor where equipment was bolted down.

To avoid disputes, it is critical that the commercial lease agreement explicitly addresses trade fixtures. A clear lease should:

• Define what constitutes a trade fixture and what is considered a permanent leasehold improvement.

• State the tenant's right to remove the fixtures.

• Specify the timeline for removal.

• Address the tenant's responsibility to repair any damage caused by the removal.

Negotiating these terms upfront can save both the landlord and the tenant from costly legal disputes down the line.

Naturally, how the concept operates in the specific context of the particular lease agreement requires experienced legal analysis, such that you make the most out of your understanding of the commercial lease agreement for your franchise. For such legal analysis and advice for your franchise and its commercial leasing arrangements, we welcome you to contact franchisee lawyer Christopher Neufeld at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or Chris@NeufeldLegal.com to schedule a confidential consultation.

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Contact us via email at chris@neufeldlegal.com or call 403-400-4092 / 905-616-8864.