I sold a residential property in alberta, the workshop had…

Hello

I could not find a link to any Alberta law, so I have included below the full text of a decision from the Alberta Court of Queen's Bench. Rulings of this court are actually binding on small claims court, so the common law (judge made law from prior court cases) referred to in this decision will be binding on a small claims court judge. This decision is from the Canadian Abridgment, which is a collection of case decisions that are viewed by the editors of the abridgment as being accurate statements of the current law, not decisions that have been overruled in any way. I think you can give a copy of this decision to the court, as there are sections that are similar and supportive of arguments you will want to make.

Good luck:

2003 CarswellAlta 557
2003 ABQB 343, 42 C.B.R. (4th) 153, 16 Alta. L.R. (4th) 104, [2003] 10 W.W.R. 690

876267 Alberta Ltd., Re

IN THE MATTER OF THE BANKRUPTCY OF 876267 ALBERTA LTD. O/A DESPERADOS ESTATE NO.25-080687

Alberta Court of Queen's Bench

Fraser J.
Heard: March 5, 2003
Judgment: April 22, 2003
Docket: Calgary BK01-080687


Counsel: Mr. Michael J. Bondar for Applicant
Mr. Frederick Zinkhofer for Respondent

Subject: Property; Insolvency

Real property --- Fixtures - What constitutes - Degree and object of annexation

Bankrupt company was former tenant of building in which it had operated restaurant and bar - Bankrupt's chattels were subject to seizure under general security agreement granted by bankrupt - New owner purchased building and took position that since various items of equipment were fixed to premises in varying degrees, they were fixtures and therefore ownership of these items vested in it - Items of equipment included power panel used to provide power to temporary bar located in tent outside building, two large, heavy bar counters containing various drink dispensers, walk-in freezer room and attached compressor, cooler unit, pizza oven and range, exhaust canopy, dishwasher platform, air exchange units, control panel for telephone system in building and two satellite dishes - Summary trial was held to determine whether items were chattels or fixtures - With exception of walk-in freezer room, compressor connected to it and control panel for telephone system in building, all items of equipment were chattels - Overriding purpose of installing most of equipment in building was equipping of restaurant and bar for purpose and period of its operation - Overriding purpose was not equipping of building with items which would improve it as building, regardless of use to which building was put - Majority of equipment was installed to assist in operation of restaurant and bar and for this business purpose - Object of annexation was for better use of equipment for operation of restaurant and bar and not to better use of land - Weight alone does not make items fixtures - Given that freezer room and compressor were part of structure of building, intention to create improvement to building must be ascribed to them - Control panel for telephone system was part of phone system serving building and its use was required for operation of building.

Landlord and tenant --- Fixtures - What constituting fixture

Bankrupt company was former tenant of building in which it had operated restaurant and bar - Bankrupt's chattels were subject to seizure under general security agreement granted by bankrupt - New owner purchased building and took position that since various items of equipment were fixed to premises in varying degrees, they were fixtures and therefore ownership of these items vested in it - Items of equipment included power panel used to provide power to temporary bar located in tent outside building, two large, heavy bar counters containing various drink dispensers, walk-in freezer room and attached compressor, cooler unit, pizza oven and range, exhaust canopy, dishwasher platform, air exchange units, control panel for telephone system in building and two satellite dishes - Summary trial was held to determine whether items were chattels or fixtures - With exception of walk-in freezer room, compressor connected to it and control panel for telephone system in building, all items of equipment were chattels - Overriding purpose of installing most of equipment in building was equipping of restaurant and bar for purpose and period of its operation - Overriding purpose was not equipping of building with items which would improve it as building, regardless of use to which building was put - Majority of equipment was installed to assist in operation of restaurant and bar and for this business purpose - Object of annexation was for better use of equipment for operation of restaurant and bar and not to better use of land - Weight alone does not make items fixtures - Given that freezer room and compressor were part of structure of building, intention to create improvement to building must be ascribed to them - Control panel for telephone system was part of phone system serving building and its use was required for operation of building.

Cases considered by Fraser J.:

Arctic Transit Mix & Concrete Products Ltd. v. Rolling Mix Concrete (Edmonton) Ltd., 1999 CarswellAlta 305, 24 R.P.R. (3d) 24, 247 A.R. 7 (Alta. Q.B.) - considered
Canadian Imperial Bank of Commerce v. Alberta (Assessment Appeal Board), 75 Alta. L.R. (2d) 362, 109 A.R. 203, [1990] 6 W.W.R. 425, 73 D.L.R. (4th) 271, 1990 CarswellAlta 139 (Alta. Q.B.) - followed
Davis, Re (1953), [1954] O.W.N. 187, 1953 CarswellOnt 448 (Ont. H.C.) - considered
Royal Bank v. Maple Ridge Farmers Market Ltd., 34 C.B.R. (3d) 270, 1995 CarswellBC 375 (B.C. S.C. [In Chambers]) - distinguished
Stack v. T. Eaton Co., 4 O.L.R. 335, 1 O.W.R. 511, 1902 CarswellOnt 399 (Ont. Div. Ct.) - followed
DETERMINATION of question of law as to whether certain items of equipment were chattels or fixtures.

Fraser J.:

1 This judgment follows a summary trial held to determine whether certain items of equipment located in a building now operated as the "Coyotes Night Club and Bar" in Calgary, Alberta, are chattels or fixtures. If they are chattels, they are subject to a seizure which has been made under a general security agreement granted by a former tenant of the building. If they are fixtures, ownership of the items of equipment in issue is vested in 934608 Alberta Ltd.("934608), which has purchased the building in which the equipment is located.

2 The former tenant was 876267 Alberta Ltd. ("876267") now a bankrupt. The building in which the equipment is located contains the night club and bar formerly operated by 876267, as tenant of the building. The night club was called Desperados.

3 Prior to its bankruptcy, 876267 also leased for some years an adjoining parcel of land to the north of the building. During the annual Calgary Stampede the corporation operated a bar in a tent erected for the purpose on the leased parcel. The bar including a bandstand was operated using electricity provided using equipment located in the building.

4 The Court heard viva voce evidence at the summary trial which, to the extent that it is relevant, will be described below.

5 Numerous authorities have been cited to assist in the determination of the status of the equipment in issue. A leading case on the subject is Stack v. T. Eaton Co. (1902), 4 O.L.R. 335 (Ont. Div. Ct.). It was recently cited in Arctic Transit Mix & Concrete Products Ltd. v. Rolling Mix Concrete (Edmonton) Ltd., [1999] A.J. No. 424 (Alta. Q.B.) in which Mr. Justice Murray stated at paragraph 4:

¶4 The case law takes us back to the principles set out in the case of Stack v. T. Eaton Co. (1902), 4 O.L.R. 335 (Ont. Div. Ct.). In that case the Court was concerned with the question of whether or not store or shop fixtures and gas and electric light fittings were chattels or whether they passed with the land. His Lordship Chief Justice Meredith set out his understanding of the law:

I take it to be settled law:-

(1) That articles not otherwise attached to the land than by their own weight are not to be considered as part of the land, unless the circumstances are such as shew that they were intended to be part of the land.

(2) That articles affixed to the land even slightly are to be considered part of the land unless the circumstances are such as to shew that they were intended to continue chattels.

(3) That the circumstances necessary to be shewn to alter the prima facie character of the articles are circumstances which shew the degree of annexation and object of such annexation, which are patent to all to see.

(4) That the intention of the person affixing the article to the soil is material only so far as it can be presumed from the degree and object of the annexation.

...

6 The present owner of the building argues that under the Stack principles, as in the present case, since all of the items in question are fixed to the premises in varying degrees, they are prima facie considered part of the land and the applicant bears the onus of establishing that the articles were not intended to have such a characterization.

7 Alberta Courts when following the Stack test, have also applied the "better use" test. In Canadian Imperial Bank of Commerce v. Alberta (Assessment Appeal Board), [1990] A.J. No. 810 (Alta. Q.B.), the late Andrekson, J. described the test with approval:

The test for deciding the object of annexation is this: was the object of affixing the article to improve the freehold or for the better enjoyment of the article as a chattel?

He then held that with respect to the object of annexation of automatic teller machines, the machines are installed for the better use and enjoyment of the machines as chattels. The decision was based on the fact that the degree of annexation was slight. The electrical telephone and alarm connections, though completed in various ways, could quickly be disconnected. Furthermore, the machines could be removed from the bank branches within a half an hour to a half a day without any evidence of damage being caused to the premises. The same considerations would appear to apply to the majority of the items of equipment now being considered by this Court in the case at bar.

8 The principles quoted from Stack were quoted with approval (as "settled law") by Mr. Justice Andrekson in the CIBC decision. In that case he stated at p.10 of 12 (Quicklaw) that:

In Blower v. Alberta (Workers' Compensation Board) (1983), 50 A.R. 66, aff'd (1984), 68 A.R. 156, the Court commented on the degree and object of annexation necessary to displace the presumption of fixture. Cawsey, J. said, at p.71:

The degree of annexation is a function of the ease of severance and the amount of damage to the structure which would occur on severance. The more difficult the severance and the more extensive the damage, the more likely is the article to be seen as a fixture.

The test for deciding the object of annexation is this: was the object of affixing the article to improve the freehold or for the better enjoyment of the article as a chattel?

A review of the cases illustrates that the application of this test, particularly the object of annexation, is nebulous to apply. Counsel for the Applicants cite several cases in which the object of annexation of appliances, affixed only by electrical connections or drainage connections, was to improve the article as a chattel and not for the better improvement of the freehold. (Investors Group Trust Co. Ltd. v. Royal View Apartments Ltd. (1987), 50 Alta L.R. (2d) 280, Amic Mortgage Investments Corporation v. Investors Group Trust Co. Ltd. (1985), 65 A.R. 174.) Similarly, production equipment used in a fish plant, and connected to the freehold only for electrical and water supplies, was held not to be a fixture. St. Lawrence, Town Council of v. Fishery Products Ltd. (1983), 130 A.P.R. 2.) In Blower, supra, a two ton crane sitting on a track bolted to the floor was held to be annexed for the better enjoyment and use of the crane as a crane and, therefore, retained its chattel character.

Counsel for the Respondents cites authorities which hold that although the degree of annexation was slight, the object of such annexation was found to be for the improvement of the freehold and, consequently, the article became a fixture. Thus, in Fess Oil Burners v. Mutual Investment Ltd., [1932] 2 D.L.R. 16, an oil burner attached to the realty by only four screws, some pipes and wiring, was held to be a fixture. Similarly, in Stott Timber Corporation v. Cape Breton (1988) 38 M.P.L.R. 68, sawmill equipment affixed mainly to lessen the vibration caused during operation was held to have been for the beneficial use of the land and, therefore, became a fixture.

9 In Royal Bank v. Maple Ridge Farmers Market Ltd., [1995] B.C.J. No. 1696 (B.C. S.C. [In Chambers]), Maczko, J. of the B.C. Supreme Court also adopted the principles from Stack. He went on to quote the statements taken above from CIBC and then stated in paragraph 5 of Maple Ridge:

The consequences of these ostensibly conflicting decisions is that there are no clear rules for classifying an article as a fixture or as a chattel, and accordingly the parties must come to court for a determination on a case-by-case basis. The present case is a perfect example. There is nothing extraordinary about the disputed restaurant items in this case (indeed, on the contrary, many would be commonly found in a restaurant); however, each party maintains that the law supports their argument as to whether it is a fixture or chattel.

10 Mr. Justice Maczko then proceeded to articulate rules which he suggested would favour commercial certainty over a subjective case-by-case approach. Those rules which are now about seven years old have not been expressly adopted or followed by an Alberta Court. Their use would change to some extent the rules from Stack which are presently in effect. For example, the third rule from Maple Ridge is that "any item which is attached even minimally, i.e. it cannot simply be unplugged, is a fixture". On the other hand, application of the Stack rule would mean that articles affixed to land even slightly would not be considered to be fixtures if the circumstances involved held that they were intended to continue their status as chattels. Use of the rules from the Maple Ridge case would therefore conflict with the Stack v. T. Eaton Co. precedent which is otherwise binding on this Court. Regretfully, therefore, a decision in this matter cannot in this province be based on the Maczko rules from Maple Ridge.

11 The evidence is mixed as to the status of the equipment as between landlord and tenant. I say this because there is no evidence of the lease arrangements which were in effect between the bankrupt corporation (as tenant) and the corporation which owned the building at the time the bankrupt corporation 876267 was in possession as tenant. These arrangements are therefore irrelevant. This view is supported by the following statement of Andrekson, J. in the CIBC decision at p.11:

The conclusion that the machines retain their chattel character applies to both the freehold and leasehold premises. With respect to the three leasehold premises, it was the Respondents' contention that lease arrangements respecting the removal of fixtures affixed during the term of the lease were irrelevant in determining an intention on the part of the lessee banks that the machines were to retain their chattel character. This, in my view, is a correct statement of the law in Alberta.

12 The following statement quoted by Mr. Justice Andrekson in CIBC at p.11 of 12 (Quicklaw) is also of interest in this regard:

In Ontario, Orde, J.A. stated in Hoppe v. Manners [1931] 2 D.L.R. 253, at p.257:

It was suggested during the argument that two persons might agree that a chattel should remain a chattel even if affixed to the realty. I know of no authority for this. I think that sometimes there is a confused idea that because a fixture, as between certain parties, may be detached from the freehold and be removed, it is therefore a chattel. But the law affecting fixtures is based upon the fact that as a matter of law a fixture is always part of the land. If fixtures were not land, but were simply chattels, notwithstanding their attachment to the realty, there would be no foundation for the development of any set of principles governing their removal. It is the fact that a fixture is part of the realty that causes the difficulty.

13 Using the Stack rules and other cases cited, I would classify the status of the items in dispute in the matter before the Court as follows:

(a) the Cutler Hammer 1600 amp power panel is a very large (2' deep x 7' high x 4' wide) and very heavy item weighing several thousand pounds. The evidence is that it was used to provide power outside the building that is primarily for the tent used as a temporary bar and entertainment facility during Stampede week by the operator of the night club in the building.

There is no evidence that the panel was needed to provide power for use in the building then operated as a night club which was its use at the time of installation of the panel. Given this situation, it could not reasonably have been intended that it would become a fixture installed to assist in the beneficial use of the land on which the nightclub was situated. I add that the panel is removable, subject only to being disconnected by an electrician and unfastened from the wall on which it is hung.

(b) There is a "back bar counter" (9' x 30' x 4') and a "truck bar" (30' x 30' x 30') which are described as "built in place". They are also described in the affidavit of Dale McMullen, senior staff accountant of Ernst & Young Inc. as being partially disassembled by the landlord and detached from walls and floor. The floor tiles surrounding the bars did not go under them but rather butted up against them. The statement was made that the bars were embedded in the floor. However an answer given on cross-examination by Mr. McMullen on his affidavit was to the effect that he saw no holes (under the bars when they were disassembled). There is no contrary evidence before the Court.

Another important point is that the bars were not nailed, screwed or otherwise fastened to the floor. They are extremely heavy and one of them is large. But weight alone does not, on the authorities cited, make them fixtures. See the decision of Murray, J. in Arctic Transit Mix & Concrete Products Ltd. v. Rolling Mix Concrete (Edmonton) Ltd., (supra).

The Arctic Transit Mix case involved the status of what was conveniently referred to as a "batch plant". It was a concrete-making facility consisting of a conveyor, loading hopper, mixer, concrete hopper, air compressor, two cement silo dust collectors with controls, and other equipment as well as what was described as a large shed made out of dimensional lumber covered with insulation, plywood sheathing and a metal-clad exterior in which the hoppers and mixtures are housed. Some of the equipment was supported by metal framework. The building sat on a concrete slab. The conveyor is on the exterior of the building and it too was supported by metal framework which was part and parcel of that piece of equipment. Some of the items that had a propensity to vibrate or were particularly heavy, sat on concrete pilings and the framework that supported them were secured either by way of metal plates bolted to the bolts in the pilings or by the metal itself being sunk into the concrete.

The issue dealt with by Mr. Justice Murray was whether or not the items described above were fixtures thus going with the land, or tenant's fixtures, being put in for the purpose of the trade conducted by the tenant such that those attached to the land may be returned to the state of chattels by severing them from the soil.

The decision of the Court as outlined in paragraph 9 of the decision was that clearly the batch plant was an independent structure and the equipment was related to the sole business purpose of producing concrete. The Court concluded that the structure and its equipment were there to enable the owner to manufacture concrete and not to better the use of the land. ... The degree of attachment of the building and equipment to the land was substantial. This was necessary due to its size, weight and the need for stability during its operation. The object of its annexation was for the better use of the equipment for the production of concrete and not for the better use of the land. In support of this decision Murray, J. referred to a quotation from a decision by Mr. Justice Spence (as he then was) in Davis, Re (1953), [1954] O.W.N. 187 (Ont. H.C.) at p. 190:

... If the object of the affixing of chattels is to improve the freehold, then, even if the chattels are only slightly affixed to the realty, they may well become part of the realty. If on the other hand, the object of the affixation of the chattels is the better enjoyment of the chattels, then the affixation does not make them part of the realty.

The bars contain drink dispensers which are connected by hoses to pumps and liquor and soft drink mix in storage facilities. The dispensers and other equipment are portable and may be removed by simply cutting the hoses. Their operation is not integral to the operation of the building as a building.

The presence of the dispensers would not change the status of the bars. This is because the bars are removable, not being fastened down. It would not be reasonable to consider that a movable bar be considered to be a fixture because of the existence of hoses attaching movable drink dispensers located in the bar to liquor supply equipment in the basement below. Nor are the bars as such integral to the operation of the building as a building. They are therefore chattels.

(c) There are two walk-in freezers in the building. One is described as being essentially a room in the building connected to a cooling unit. The room was not portable, being part of the structure of the building. It and the compressor connected to the cooler room, are both fixtures having regard to the nature of the attachment of the room to the building. Given the structural nature of the room, an intention to create an improvement to the building must be ascribed to it.

The second cooler was described in the opinion of Mr. Rene Hajas as being made of individual [wall] pieces 8' x 8' in size which lock together. It is assembled as a free-standing unit on the floor with a condenser which sits on its roof. It is held to be a chattel as there is no evidence of a structural attachment of the room to the building. The condenser used to cool the room sits on its ceiling. The Hajas opinion was hearsay, but no attempt was made to dispute it on a factual basis.

(d) A pizza oven and range are attached to the building by electrical and gas connections. They may be removed without damage to the building provided that the electrical and gas connections are disconnected and capped. Their operation is not integral to the operation of the building as a building. They are chattels.

(e) An exhaust canopy is installed in the kitchen over the range for purposes of ventilation and fire protection. It is described in argument as a typical restaurant fume hood attached to the building by connections to fire suppression units and power and ducting to the outside roof. The latter is an integral part of the canopy which would be left and capped if the hood were removed. Because of the removable nature of the oven which the canopy serves and the removable nature of the canopy (except the ducting), the canopy unit other than the ducting is held to be a chattel.

(f) A dishwasher "pit" (being a platform on which dishes sit with Hobart dishwasher and sink) is bolted to the floor with electrical and plumbing connections to the building. Its presence there is not required to assist in the operation of the building as such in the manner that bathroom and heating facilities would. Rather I would equate it to a stove or refrigerator in a house which would have to be "unplugged" to be removed. Removal of the dishwasher would not cause damage to the building provided the connections to power and plumbing sources are capped. It is a chattel.

(h) There are units in issue comprised of what might be described as two air exchange systems. One is an air exhaust unit required by the building code for a restaurant to extract air from the kitchen area and the other is a make-up air system to replace and condition the air and smoke taken out from the dining room area. The two systems are not part of the basic heating system for the building. The units involved have electrical connections and the units which heat have gas connections. Subject to disconnecting and capping these connections, the units involved are sitting on the roof and may be removed by crane without damage to the building. The units would maintain their essential character and ability to work if removed from the building. They are chattels installed for their better enjoyment and use as an air exchange system. They would not be required if the building was not being used for a restaurant.

(i) The control panel for the telephone system in the building has no use apart from the system of which it is a major part. It cannot therefore be said to have been installed for its better use and enjoyment. It is part of the phone system serving the building. It is a fixture because its use is required for the operation of the building and because of the use of the building as a restaurant.

(j) Two satellite dishes are not firmly affixed to the building but just sit there and would have to be unbolted according to paragraph 40 of the Affidavit of Mr. Sandhu. They are chattels which could quite feasibly be removed, installed and used elsewhere. They are required only to assist in the better use of the building as a restaurant.

14 The present owner of the building argued that the power grid as well as the telephone system, air make up units and kitchen canopy are not useful by themselves and are only useful when attached to a building. While that may be an accurate statement of fact, the overriding purpose of installing most of the equipment in the building must be taken to be the equipping of the restaurant and bar for the purpose and period of its operation in the building. The overriding purpose has not been the equipping of the building with items which would allow its use as a building regardless of the use to which the building was put. As in the Arctic Transit Mix case therefore, the majority of equipment described above was installed to assist in the operation of the restaurant and bar, and for this business purpose. Hence, except as noted, the items of equipment are chattels. The object of annexation was for the better use of the equipment for the operation of the restaurant and bar and not to better the use of the land.

15 In the result the individual items of equipment described above are declared to be chattels or fixtures as I have described them.

16 No issues were raised in argument about the cost of removal of any of the equipment or its value.

17 If counsel are unable to agree on costs or any other direction required, they may speak to me within the next 60 days.

Order accordingly.