Explore the case of a health club’s ownership dispute with its landlord. Get insights into asset rights and landlord-tenant conflicts in this M&A legal battle.
M&A Stories
February 18, 2019
In a recent case, a health club in Georgia faced a legal dispute with its landlord over ownership of certain club assets. Here’s a concise breakdown of the situation:
Background:
The health club was a tenant in a building leased from the landlord. However, financial troubles led the club to file for bankruptcy and subsequently sell its assets to a buyer. Importantly, the buyer did not lease the landlord’s building.
Asset Removal:
Following the sale, the buyer began removing assets from the health club, including lockers, mirrors, a nonmovable sink, and T.V. stands.
Landlord’s Claim:
The landlord initiated legal action in bankruptcy court, claiming ownership of the aforementioned assets.
Court Ruling:
The court ruled in favor of the landlord for certain assets:
1. Mirrors attached to the walls and lockers in a new club addition were owned by the landlord, as they were installed during the building’s expansion.
2. As for the sinks, a juice bar had installed them, but the seller allowed the third party to leave a freestanding sink in return for not pursuing legal action. The court found that the sink attached to cabinets was a fixture owned by the landlord. However, the easily removable freestanding sink was awarded to the buyer. The same decision applied to the T.V. stands.
Trade Fixtures:
Additional mirrors in the old part of the club became a point of contention. The landlord claimed ownership under the lease, while the court determined them to be trade fixtures. These mirrors were easily removable without causing substantial damage to the building, making them the property of the seller (and subsequently the buyer).
Lessons Learned:
This case highlights the ambiguity in landlord-tenant ownership of fixtures. Buyers of businesses operating in leased spaces should conduct thorough due diligence to identify potential ownership disputes with the landlord.
Case Reference:
IN RE SCIENCE FITNESS, LLC, Case No. 14-12297, Adversary Proceeding No. 16-01035., United States Bankruptcy Court, S.D. Georgia, Augusta Division, (February 1, 2019).
By John McCauley: I help people start, grow, buy and sell their businesses.
Email: jmccauley@mk-law.com
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