Fixtures Flashcards
Attached to Real Property
An article that once was personal property but has been annexed to and become part of the real estate is a fixture. Whether an article is a fixture depends on the intention of the parties and may be determined by:
The manner in which the item is attached;
Its type and adaptability to the real property;
The purpose it serves; and
The relationship of the parties.
Lumber to build a structure is personal property, or chattel, when it is delivered to the building site. By attachment and intent of the builder, however, the lumber becomes a building on the land and thus real estate. The same is said for light fixtures, showers, bathtubs, toilets, windows, bricks, clotheslines, wood stoves, window shades, and so on
Determining What is a Fixture
Generally, the test of whether an item is a fixture as a result of its method of attachment depends more on the firmness of its installation than on the damage that might be caused by its removal. The fact that removal leaves a dirty or unpainted spot is irrelevant.
Determining what is a fixture can be a problem during real estate transactions because the buyer and seller may have different perceptions. For example, an owner may have installed track lighting in the dining room and wants to remove it upon sale of the home, contending that it is his personal property. If the buyer wishes to establish that the lighting is a fixture and should remain with the home, the courts may apply several tests to resolve this issue.
3 questions concerning attachments
How permanent is the attachment?
What was the intent of the person installing the item?
If it is removed, can the item be used elsewhere?
A seller must deliver all fixtures unless noted as exceptions in the contract of sale. This applies to unowned fixtures as well. A broker taking a listing should inspect the premises carefully and determine whether any of the apparent fixtures, such as air conditioners or carpeting, are rented or being purchased under a Uniform Commercial Code financing statement.
Constructive Annexation Theory
Some articles are so closely associated with a structure that they are deemed to be fixtures under the constructive annexation theory, as in the case of house keys, which pass to the buyer upon sale of the property. If an article is determined to be a fixture, it passes with the property even though it is not mentioned in the deed.
Agent’s Responsibility
Because different people may view the determination of fixture status differently, the real estate salesperson is responsible for ensuring that all parties to the contracts clearly understand who owns the fixtures. This can be achieved through a carefully written, explicit listing contract between real estate agent and seller, and the purchase contract between buyer and seller. The contract of sale should specify who is to own certain doubtful items, such as TV antennas, solar devices, security systems, blinds, and so on.
Fixture Questions
Real estate value for tax purposes;
Whether a real estate sale included the item or items in question;
Whether the item is part of the security given by a mortgagor to a mortgagee;
The ownership of the item when the lease is terminated; and
Coverage under a hazard insurance policy that excludes personal property items.
Fixture questions
Real estate value for tax purposes;
Whether a real estate sale included the item or items in question;
Whether the item is part of the security given by a mortgagor to a mortgagee;
The ownership of the item when the lease is terminated; and
Coverage under a hazard insurance policy that excludes personal property items
Purchase Contract
the “final” contract between buyer and seller; the buyer is not bound by the listing because he or she is not a party to it. The purchase contract dictates ownership of the fixture. It should list any items that could cause confusion among the parties as included or excluded from the contract.
Trade fixtures
The law of real estate recognizes an exception to the fixture rule for trade or tenant fixtures. A business tenant can normally remove trade fixtures at the termination of the lease because the courts reason that the parties did not intend that the tenant’s fixtures would become a permanent part of the building.
The trade fixture rule applies only to those articles installed by the tenant, not to those installed by the landlord. If the tenant fails to remove trade fixtures, the landlord takes title to the abandoned property
Removal of Trade Fixtures
Of course, the lease contract should be clear on the point of trade fixtures. The rental may allow the landlord to retain these items. If the rental agreement does not have this provision, trade fixtures remain the property of the installing tenant.
Upon removal of a trade fixture, the tenant does have the responsibility to restore the property to its original condition. This may involve capping plumbing, repairing walls, filling holes and any other tasks necessary to restore the property to original condition.
The question of whether an item is a fixture, and thus part of the real estate has become especially important in modern transactions because of the different rules of lien priority for fixtures and nonfixtures set forth by the Uniform Commercial Code (UCC).
Leasehold Improvements
Physically similar to trade fixtures, but legally different, are leasehold improvements. These are the improvements to leased property made by the lessee. Such improvements, generally tax depreciable by the lessee, are depreciable over the cost recovery period. Even though a leasehold improvement may be physically identical to a trade fixture, the difference lies in who installed the item.
If it is installed by the landlord, it remains with the building and is a leasehold improvement.
If it is installed by the tenant, it is a trade fixture and removable.
Uniform Commercial Code
Uniform Commercial Code provides for the lender to retain a security interest in the personal property until the lender is paid in full.
Financing Statement
Rather than recording the agreement, the creditor would file a financing statement in the recorder’s office. If the financing statement has been properly filed, the creditor, upon default, can repossess the chattel and remove it from the property.
An example of this type of financing and security agreement is a farmer financing the building of grain storage bins. The lender does not take a mortgage on the land on which the bins are built but instead takes a security interest in the bins themselves.
Fixture
By definition a fixture is a real property and is owned by the landowner
An object that once was personal property but has been annexed to and become part of the real estate
