Do you understand how FIXTURES IN REAL ESTATE work?
Let’s say you own a building in a commercial area of town. Tom rents space in your building in which he operates a bookstore. In this bookstore, there are large tables fastened to the walls, where customers are encouraged to sit and read. So the shelves create isles from the front of the store to the back. The shelves themselves are bolted to both the ceiling and floor.
What do you think will happen to the shelves if Tom’s lease is over?
Am assuming your answer is Tom or someone else will have to remove them.
What about a situation where a buyer moves into a newly purchased home and discovers that the seller had taken the electric lighting fixtures that were installed over the vanity bathroom? This seller had not indicated that the fixtures would be removed. In this case the buyer has the right to take action.
In these scenarios there are two things you need to understand in relation to real estate or even real property, and that is, how fixtures in real estate work.
Real property vs Personal property
Before looking at fixtures in real estate, you need to understand the difference between real property and personal property. It really is simple, if you want to make money in real estate and you cannot tell the difference between real and personal property then you will be in trouble. Personal property is, simply put, all property that does not fit the definition of real property. These are movable property such as, chairs, money, bonds, shelter etc. Item of personal property can also be referred to as Chattels.
RELATED: Understanding WHAT LAND, REAL ESTATE and REAL PROPERTY IS
What are fixtures?
In addition to knowing the difference between real property and personal property you have to understand the distinction between fixtures and personal property.
A fixture is personal property that has been affixed to land or a building that, by law, it becomes part of real estate. Notice how this differs from a chair in the house or money, basically other personal properties and chattel. Fixtures can include, kitchen cabinets, light fixtures, heating systems etc. Think of this as almost any item that has been added as a permanent part of a building.
The challenge however is that at some point, the same material may be both real property and personal property, depending on their use and location. The question then is how can you tell the difference?
Legal tests used to determine if an item is a fixture
Courts use the following five tests to determine whether an item is a fixture (real property) or personal property.
- The intention of the parties: when the item was installed or attached, did the person who installed it intend for it to remain permanent on the property or for it to be removed in future? Remember Tom’s shelves at the beginning of this article?
- Method of attachment or annexation: how permanent is the method of attachment? Can the item be removed without causing damage to the surrounding property? Remember you could be in a position to remove a light fixture but it will probably be considered a fixture. Recall the second example at the beginning?
- Adaptation to real estate: is the item being used as real property or personal property? If the item becomes an integral part of the building, it cannot be removed. A built in refrigerator for example could be unplugged and removed but it is considered a fixture because it’s an integral part of the house.
- Agreement between the parties: have the parties agreed on whether the item is real or personal property?
- What is the nature of the relationship between the parties?: Remember the buyer is likely to win if the dispute is between the buyer and the seller and the same can be said of the tenant in the land lord- tenant relationship.
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Why is knowing fixtures in real estate important?
Purchase contracts usually have a clause that will have some sort of definition of items included in sale, something like, “All existing fixtures and fittings that are attached to the property” and it will make a list of these items.
What this means is that at the time of the sale the seller and the buyer should discuss what items are to be included in the sale. So, if for some sentimental reason you want to use a light fixture, currently in the house you intend to sell, in your next home, you could replace it before you list the house for sale. This way you avoid misunderstanding between the parties that could result in the collapse of the transaction and expensive lawsuits.
FIXTURES vs TRADE FIXTURES
The other thing you need to understand as you figure out how fixtures in real estate work, is a subcategory of fixtures called trade fixture or chattel fixture. This is property owned by a tenant and is attached to a rented space or building or used in conducting business, for example book shelves, bars and restaurant equipment.
The difference between trade fixtures and other fixtures can be summed up as;
- Fixtures belong to the owner of the real estate, but trade fixtures belong to the tenant
- Fixtures are permanent part of a building while trade fixtures are temporary
- Legally speaking fixtures are real property while trade fixtures are personal property
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