Daily Development for Wednesday, November 1,
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
LANDLORD/TENANT; TENANT’S LIABILITY TO THIRD PARTIES; FIXTURES: Tenant that leaves trade fixtures on premises to be used by employees of successor landlord may be liable to plaintiff injured due to defects in the fixtures even if the current tenant has agreed with the landlord that the fixtures are taken “as is.”
Dutchmen Manufacturing, Inc. v. Reynolds, 849 N.E. 2d 516 (Ind. App. 2006)
Dutchmen leased property from Chapman and operated a manufacturing facility there. As part of this operation, Dutchmen, without Chapman’s knowledge or consent, installed scaffolding near the ceiling of the building. The lease provided that any trade fixtures left on the premises after the lease ended became the property at landlord at landlord’s option. The landlord also could require the tenant to remove the fixtures. The scaffolding in question was conceded by all parties to constitute a trade fixture.
When the lease ended, Chapman first demanded that Dutchmen remove the scaffolding. Before this occurred, however, it developed that the incoming tenant desired that the scaffolding be left in place. As it would have been expensive for Dutchmen to remove the scaffolding, it eventually reached an agreement that it would simply leave the scaffolding in place for no compensation. The new lease provided that tenant accepted the premises “AS IS” and, further, the president of the new tenant delivered an affidavit to Chapman that his company “acepted and took possession of the scaffolding . . . at its own risk, regardless of whether the scaffolding contained defects or deficiencies.”
Good call - landlord!! A short time later, a portion of the scaffolding fell from the ceiling and struck an employee of the new tenant, rendering the employee quadriplegic. The employee sued Dutchmen, alleging that its experts had ascertained that the scaffolding contained negligent welding and lubrication, and that the defect was contained inside a pipe constituting an “outer sleeve” which was capped, and thus effectively invisible to anyone inspecting the scaffolding. The scaffolding had been constructed by Dutchmen employees.
The injured employee sued Dutchmen under Restatement of Torts Section 388, which states that “one who supplies directly of indirectly through a third person a chattel for another to use is subject to liability to [expected users or others injured by expected usage] for physical harm caused by the use of the chattel . . . if the supplier knows or has reason to know that the chattel is or is likely to be dangerous for the use for which it is supplied [and the problem is unlikely to be discovered and know warning is given.]”
Dutchmen argued that it hadn’t “supplied” a chattel because the scaffolding “merged” into the real estate when it was left on the premises following the expiration of the lease, and became the property of the landlord. The court held that the fact that the landlord had in fact originally demanded that the tenant remove the scaffolding indicated that no merger had in fact occurred, and that the scaffolding, which, as a trade fixture, was a “chattel,” passed directly from Dutchmen to the new tenant.
But the court went on to say that the question of whether the landlord was an intermediate owner of the scaffolding was irrelevant to its conclusion of Dutchmen’s liability here. Once the item is “supplied,” then potential liability exists. The court analogized to a contractor supplying faulty wiring that is installed into a building, thus become part of the “real estate.” The supplier would still be liable under Restatement 388 if the defect in the wiring led to a foreseeable injury.
Dutchmen then argued that the new tenant contractually assumed the risk of defects in the scaffolding when it accepted the scaffolding “as is.” The court first noted that the “as is” agreement was with the landlord, not with Dutchmen, and simply was a waiver of claims, if any, against landlord Chapman. In fact, the language in the lease itself likely didn’t apply to the scaffolding at all, since the scaffolding was not part of the leased premises, as ownership of it passed directly from Dutchmen to the new tenant.
In any event, the court held, parties cannot, through an “as is” agreement, transfer risk from themselves to non-parties. Any allocation of responsibility to the new tenant did not absolve Dutchmen of liability for its negligence insofar as plaintiff was concerned. The court cited cases for the proposition that an employer’s indemnification of a third party does not limit an employee’s claims against that third party. (The court did not decide that the “as is” affidavit constituted such an indemnification, but concluded that it wouldn’t have mattered if it did.)
Comment 1: The case is correct, and largely based upon tort principles, rather than upon property concepts. The issue of tenant’s duty to remove fixtures is remarkably unresolved. Compare U.P.C., Inc. v. R.O.A. General, Inc., 990 P.2d 945 (Utah App. 1999) (the DIRT DD for 12/7/99) (tenant that installs fixtures or improvements with landlord’s knowledge and consent has no duty to remove them at lease end) with S.S. Air v. City of Vidalia, 2006 Westlaw 399749 (Ga. App. 2006) (contra).
Comment 2: Of course, the practice lesson for the landlord is a good one. Murphy’s law insures that if that scaffolding might be dangerous, it will be dangerous, and therefore if it stays, the landlord wants complete protection. It got it here.
Items reported here and in the ABA publications
are for general information purposes only and
should not be relied upon in the course of
representation or in the forming of decisions in
legal matters. The same is true of all
commentary provided by contributors to the DIRT
list. Accuracy of data and opinions expressed
are the sole responsibility of the DIRT editor
and are in no sense the publication of the ABA.
Parties posting messages to DIRT are posting to
source that is readily accessible by members of
the general public, and should take that fact
into account in evaluating confidentiality
DIRT is an internet discussion group for serious
real estate professionals. Message volume varies,
but commonly runs 5 to 15 messages per work day.
Daily Developments are posted every work day.
subscribe, send the message
subscribe Dirt [your name]
To cancel your subscription, send the message
signoff DIRT to the address:
for information on other commands, send the
Help to the listserv address.
DIRT has an alternate, more extensive coverage that includes
commercial and general real estate matters but also focuses specifically upon
residential real estate matters. Because real estate brokers generally find
this service more valuable, it is named “BrokerDIRT.” But residential
specialist attorneys, title insurers, lenders and others interested in the
residential market will want to subscribe to this alternative list. If you
subscribe to BrokerDIRT, it is not necessary also to subscribe to DIRT, as
BrokerDIRT carries all DIRT traffic in addition to the residential discussions.
To subscribe to BrokerDIRT, send the message
subscribe BrokerDIRT [your name]
To cancel your subscription to BrokerDIRT, send the
signoff BrokerDIRT to the address:
DIRT is a service of the American Bar
Section on Real Property, Probate & Trust Law and
the University of Missouri, Kansas City, School
of Law. Daily Developments are copyrighted by
Patrick A. Randolph, Jr., Professor of Law, UMKC
School of Law, but Professor Randolph grants
permission for copying or distribution of Daily
Developments for educational purposes, including
professional continuing education, provided that
no charge is imposed for such distribution and
that appropriate credit is given to Professor
Randolph, DIRT, and its sponsors.
DIRT has a WebPage at:
Your e-mail address will only be used within the ABA and its entities. We do not sell or rent e-mail addresses to anyone outside the ABA.
To change your e-mail address or remove your name from any future general distribution e-mails you can call us at 1-800-285-2221, or write to: American Bar Association, Service Center, 321 N Clark Street, Floor 16, Chicago, IL 60610
If you are an ABA member, log in to the ABA Web site at https://e2k.exchange.umkc.edu/exchweb/bin/redir.asp?URL=http://www.abanet.org/abanet/common/MyABA/home.cfm to edit your member profile. Otherwise, complete the form located at https://e2k.exchange.umkc.edu/exchweb/bin/redir.asp?URL=https://www.abanet.org/members/join/coa2.html
To review our privacy statement, go to https://e2k.exchange.umkc.edu/exchweb/bin/redir.asp?URL=http://www.abanet.org/privacy_statement.html.
If you have any problems, please contact the list owner