Wind farms
Legal10/08/2021 1:02:00 AM

Wind-farm plant and equipment held to be tenants' fixtures

In a recent NSW Supreme Court decision, wind-farm plant and equipment, including 51 wind turbine generators, were held to be tenants’ fixtures. Atlhough the plant and equipment were affixed to the land and part of the realty, the tenant had the right to sever and remove them during and at the end of the lease.

What happened

Farmland in Taralga, New South Wales, (“the land”) was leased, subleased and sub-subleased to certain companies for use as a wind farm (“the wind farm”).

The wind farm consisted of various items of plant and equipment that were constructed by the subtenant (“the plant and equipment”). They included 51 wind turbine generators (“WTGs”), 28 kms of underground electrical cabling, a switchyard, a control building, 23 kms of paved access roads, hardstands next to each WTG and 8, 80 m-high meteorological masts.

Each WTG consisted of: (1) a steel-reinforced concrete base that was 15 m wide and 3 m deep; (2) an 80 m-high tower in 3 sections that was attached to the base by 2 rows of bolts around the circumference; (3) a nacelle that sat on the top of the tower and housed a transformer, generator and gearbox; (4) a hub connected to one end of the nacelle; and (5) 3 fibreglass blades connected to the hub to capture the wind.

Each WTG had a design life of 20 years.

The underground cables could not be removed without damaging them.

The switchyard consisted of a switchroom building, a substation and other items. The structures within the switchyard had their own concrete footings.

The control building contained facilities and equipment for operations and maintenance staff. It was built upon a concrete slab.

The total value of all the plant and equipment was approximately $227 million.

The wind farm leases had terms of 30 years. They provided that the tenant could remove the electricity-generating items of plant and equipment during the lease terms and that the tenant had to remove them at the end of the leases.

It was estimated that removing all the WTGs would take between 8 and 13 weeks, depending on whether the WTGs would be resold or recycled as scrap. There was no indication that the tenant, subtenant or sub-subtenant intended to remove any of the plant and equipment until items reached the end of their working life or the wind farm was decommissioned.

In proceedings in the Supreme Court of NSW, questions arose as to the status of the plant and equipment. The Court was called upon to determine whether:

  • the plant and equipment were fixtures
  • the plant and equipment were also tenants’ fixtures, being fixtures that the tenant had the right to sever and remove from the land during or at the end of the leases.

Also, a question arose as to whether a tenant’s right to remove tenant’s fixtures was a separate, equitable interest in land which could be transferred. In Commissioner of State Revenue (WA) v TEC Desert Pty Ltd 2009 ATC ¶20-120; [2009] WASCA 128 (“TEC Desert”), it was held that the right to remove tenants’ fixtures was a separate, equitable interest.

What the Court decided

Payne JA held that the plant and equipment were fixtures and tenants’ fixtures. His Honour also held that a right to remove tenants’ fixtures was not a separate, equitable interest in land.

Plant and equipment as fixtures

His Honour held that the plant and equipment were fixtures.

Whether a chattel has become a fixture depends on the objective intention with which the chattel was put in place on or within the relevant land, having regard to the degree and object of annexation. And an important test for ascertaining the relevant intention was to inquire whether the object and purpose of the annexation was for the better enjoyment of the chattel itself or for the better enjoyment of the land.

Concerning the degree of annexation, his Honour found that the WTGs, the switchyard, the switchroom building, the control building and the meteorological masts were strongly affixed to the land. Removal of the concrete foundations and cabling would damage the land. Furthermore, removal of the WTGs would be a considerable task, taking many weeks.

Concerning the purpose of annexation, his Honour held that the plant and equipment was put in place for the better enjoyment of the land as a wind farm and not for the better enjoyment of the plant and equipment as chattels. Furthermore, the plant and equipment were affixed to the land with the intention that they remain in place for a substantial period. It was not intended that any of the items be removed until they had reached the end of their useful life or until the wind farm was decommissioned.

Plant and equipment as tenants’ fixtures

His Honour held that the plant and equipment, apart from the access roads, were tenants’ fixtures. They were installed with the intention that the tenant could remove them during or at the expiration of the leases. None of the items were so permanent, immovable or incapable of being removed without causing irremediable damage to the land as to constitute landlords’ fixtures.

Right to remove tenants’ fixtures as a separate equitable interest in the land

His Honour did not accept the proposition in TEC Desert that a right to remove tenants’ fixtures was a separate equitable interest in land and that the purchaser acquired such an interest in the acquisition. A tenant’s interest in unsevered leasehold improvements is a purely legal interest in land that arises from and is governed by the terms of the relevant lease and rights under the common law.

Editorial comment

This decision contains a useful survey of the law of fixtures and tenants’ fixtures. Concerning the latter, Payne JA explained that the doctrine operates as an exception to the law of fixtures. If a chattel has become a fixture (because it has been affixed or annexed to land with the objectively-ascertained intention that it become part of the land, having regard to the degree and object of annexation), the question then is whether the fixture is a tenants’ fixture. By being a fixture, the item has become part of the landlord’s property and the landlord has legal title to it. However, if the item is a tenants’ fixture, the landlord’s title is subject to a right in the tenant to sever and remove the item during or at the expiration of the lease term. As Emmett J said in Metal Manufacturers Ltd v FC of T 99 ATC 5229; [1999] FCA 1712, [179]:

“The law of fixtures may operate harshly. The doctrine of tenant’s fixtures ameliorates that harshness in certain circumstances. Thus, a tenant is given the right, upon the expiration of the tenancy, to sever items from the land that have been installed during the currency of the tenancy. The right stems not from any consideration that the tenant must not have intended that the items remain permanently on land belonging to the landlord, and therefore, the items must continue to be chattels. Rather, the principle recognises that, despite the fact that the tenant did not intend the item to become affixed to the land, the item did in law become a fixture.”

Whether a fixture is a tenants’ fixture will not depend solely on the terms of the lease. An item may still be a tenants’ fixture if it is a tenants’ fixture under the common law. Nevertheless, when entering into a lease or taking an assignment of a lease, it is critical that the tenant or assignee clarify the status of chattels that have been or will be affixed to the premises. The lease should be very clear about whether chattels affixed during the fit-out or subsequently are to remain the landlord’s property or whether the tenant will be able to remove them as tenants’ fixtures.

Source: SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue (2021) ACML ¶85-497; [2021] NSWSC 395.

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