News 05.31.17

Real Estate Client Alert: Michigan Court of Appeals’ Recent Decision Reviews What Constitutes a Fixture Under Michigan Law

Case Summary, Holding, & Rationale

Great Northern owned a large parcel in Grand Traverse County. The parcel was vacant except for a single 300-foot radio/cell phone tower and a utility building.  In 1990, Great Northern leased the property to Verizon allowing Verizon to use the existing tower or to replace it. In 2000, Verizon elected to replace the existing tower and constructed a new 450-foot tower that sat upon a concrete slab and was balanced with three steel wires that latched to three surrounding anchors.  In 2013, Verizon informed Great Northern that Verizon did not intend to remove the tower and Great Northern consented.

When Great Northern defaulted on the payment of its property taxes, Grand Traverse County foreclosed, obtained title to the property and claimed that the tower was a fixture that transferred to the County as part of the foreclosure (after unsuccessfully negotiating with Verizon to purchase the tower). Great Northern objected, arguing that the tower was personal property.  The Lower Court and the Michigan Court of Appeals rejected Great Northern’s position, holding that the tower was a fixture and was now owned by the County. 

The Court of Appeals reaffirmed Michigan’s three-part test for determining what constitutes a fixture, as follows: “[First], annexation to the realty…second, adaptation or application to the use or purpose to which that part of the realty to which it is connected is appropriated; and third, intention to make the article a permanent accession to the freehold.” 

Since the tower was constructed on a cement slab buried in the ground and was latched to anchors in the ground (even though it could be moved/removed), the Court of Appeals ruled that it was “attached” to the Property. Next, the Court of Appeals held that the adaption requirement was met because the tower was a “useful adjunct to the realty” because it provided broadcasting signals.  Finally, the Court of Appeals concluded that the intent requirement was satisfied because the tower was to remain in place until Verizon accomplished its purpose (to broadcast signals) during the lease.

Application & Analysis

From a practical perspective, this decision provides some helpful ammunition for Michigan Landlords/Property Owners as the Court of Appeals, in essence, rejected 2 of the most popular Tenant arguments on fixtures: (1) property cannot be a fixture if it can be removed from the real property (but this tower could be removed and it was still held to be a fixture); and (2) the parties cannot intend property to be a fixture without permanence in perpetuity (but this cell tower was only required to remain in place during the lease). Although you may not own/lease property with a cell phone tower on it, the arguments proferred by the County and favorably adopted 3 weeks ago by the Michigan Court of Appeals in this attached case should be considered the next time you encounter a fixture issue.