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Alterations and Improvement Clause
By
M. Robert Goldstein and Michael J. Goldstein
In most form leases there is a provision similar to Clause
3 of the Real Estate Board form lease known as the "alterations
and improvements' clause." Although they vary in
detail, the essential part of the clause provides that "all
alterations — installations and additions or improvements
upon demised premises made by either party — shall become
the property of landlord, and shall remain upon, and be surrendered
with said premises, as a part thereof, at the end of the term
or renewal term as the case may be."
The question then, with respect to tenants installations,
is where there is such a clause, in the event of a condemnation
proceeding, are they fixtures for which a tenant may receive
compensation or have they become the property of the landlord
for which he receives the compensation?
Court Interpretation
Courts generally, in interpreting this clause, have treated
it as simply declaratory of the common law. At the common
law the same property may be treated differently as between
different parties as to whether on installation it becomes
realty or personalty. While a particular installation might
be treated as part of the real estate, as between a vendor
and vendee of the real estate, that very same property might
at the same time be considered personalty as between the landlord
and the tenant. Since the vendor-vendee test is applied between
condemnor and condemnee, and the test is different between
landlord and tenant it is usual to find that property installed
by a tenant is deemed a compensable trade fixture as part
of the real estate while at the very same time as between
the landlord and tenant it is deemed the property of the tenant.
McCrea v. Central National Bank of Troy, 66 N.Y. 489
(1876).
In conflicts between the landlord and tenant the question
as to whether it is realty or personalty is resolved by the
effect to be given to the agreement between the parties as
to the intention to make the installation a permanent accession
to the property Murdock v. Gifford, 18 N.Y. 25 (1859).
Courts have not treated the usual alterations and improvements
clause as declaratory of an intent to make the installation
the property of the landlord if the nature of its installation
did not otherwise make it so.
Ruling Cited
In U.S.A. v. Certain Lands Located in the Borough of Manhattan
306 F. 2d 439, 449 it was stated:
"Some fixtures, even though annexed by the tenant are ‘distinctively
realty' and therefore become the property of the landlord;
others which are removable without material injury to the
freehold remain the property of the tenant even though they
are classified as realty because they are severely damaged
or lose substantially all their value on severance. Examples
give meaning to the distinction. Asphalt cemented to the floor
by the tenant belongs to the owner. But ‘sectional moveable
and interchangeable partitions' specially adapted to
the building but removable without injury to it are realty
belonging to the tenant."
"Machinery which is sufficiently annexed to be fixture
within the Whitlock Avenue case is ordinarily ‘realty'
which belongs to the tenant. Similarly, wiring and pipe are
the kind of ‘realty' which remains the property
of the tenant ‘where those items have no connection with
the operation of the building and serve to purpose but the
proper functioning of the tenant's fixtures, and are
a part of the fixtures instead of the building.'"
In 344 F. 2d 142 the court, clarified further to above in
stating: "We may well have misled Judge Dimock by our
statement that ‘asphalt cemented to the floor by the
tenant belongs to the owner.' This would be true if the
asphalt became the only floor or integral with it, but we
see no good reason for distinguishing a covering of asphalt
tiles, removable without damage to the basic structure or
a false ceiling similarly removable, from the partitions held
to belong to the tenant in the Century Holding Case."
Clause Discussed
The court in 306 F. 2d 439, then went on to discuss the alterations
and improvements clause. "This distinction between improvements
made by the tenant which became the landlord's property
and those which remain the tenant's, even though considered
‘realty,' is not changed by the standard alteration
provision. This clause, with or without the exception for
moveable trade fixtures, adapts and perhaps, very slightly
extends the New York concept of fixtures which though annexed
by the tenant are ‘distinctively realty' —
The New York courts bearing in mind the purpose of the law
of fixtures ‘to protect those who, having an estate less
than a fee in land had made improvements upon which, if they
could not retain, would be lost to them' have taken a
generous view of what may be removed without injury to the
freehold and is excluded from the standard alterations clause."
The interpretation of this clause was also treated with in
In re Howard Laundry Co., 203 Fed 445 (2d Cir. 1913)
where it was stated that "This clause was simply declaratory
of the law and gave the landlord no additional right to articles
found to be trade fixtures. It was undoubtedly intended to
cover permanent additions to the buildings and not personal
property which for business purposes is a temporarily and
detachably fastened to the floor or ceiling of a building.
"The presumption is that trade fixtures belong to the
tenant and if it be the intention of the parties that they
shall become the property of the landlord at the expiration
of the lease, that purpose should be stated in language so
clear and explicit that there can be no doubt as to its meaning.
That intent cannot be deduced from broad and general language,
which is usually found in the printed forms, regarding improvements.
When this word is used without any language defining or extending
its ordinary meaning, the courts, with substantial uniformity
have held that it relates to improvements to the realty and
not to trade fixtures." (See also In re Seward Park
Slum Clearance Project, 10 A.D. 2d 498 (1960), In re
Mount Holly Paper Co., 110 F. 2d 220, 225 (3rd
Cir. 1940).
No End to Term
Although condemnation acts to terminate the lease, this is
not deemed, for the purposes of this clause, such an end to
the term as forfeits the tenant's installations to the
landlord. Gristede Bros., Inc., v. State of N.Y., 11
A.D. 2d 580 (3rd Dept. 1960); U.S. v. Seagren,
50 F. 2d 335.
The law is full of cases where there was an endeavor to protect
a tenant as to his installations and to prevent a forfeiture
to the landlord whether there be an alterations and improvements
clause or not. Ombony v. Jones, 19 N.Y. 237; Webber
v. Franklin Brewing Co., 123 App. Div. 465 (1st
Dept., 1908), aff'd on opin. below 198 N.Y. 509; Excelsior
Brewing Co. v. Smith, App. Div. 668 (2d Dept., 1908);
Century Holding Co. v. Pathe Exchange, 200 App. Div.
62 (1st Dept. 1922); Lewis v. Ocean Navigation
and Pier Co., 51 Hun 644, 3 N.Y.S. 911, aff'd 125
N.Y. 341; Bernheimer v. Adams, 70 App. Div. 114 (1st
Dept., 1902), aff'd 175 N.Y. 472.
The result then is that in condemnation proceedings, the
alterations and improvements clause is in effect ignored and
the ordinary common law rules applied.
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