CHAPTER 4/II. REAL PROPERTY VS. PERSONAL PROPERTY

What is a trade fixture?

A trade fixture is an item that has been installed at a business location for business use, such as shelving, display cases, or appliances necessary for a business operation.

How to avoid disputes and misunderstandings about the state of possible fixtures?

Disputes and misunderstandings about the status of possible fixtures can be avoided with a well-written contract. Licensees should take great care to explicitly include all items that could possibly be subject to interpretation. A contract's "inclusion clause" will specify items that are included in the purchase and an "exclusion clause" will specify items that are not included.

4. Adaptation of the Item:

If an article is custom made for a particular use (such as custom drapes) or built and installed to particular specifications and dimensions (built-in wine rack), the article will likely be considered a fixture.

3. Agreement of the Parties:

If the parties have specifically defined in their contract that certain items are fixtures, the terms of the contract will control. For example, a chandelier that is attached to the ceiling would ordinarily be classified as a fixture and would be included with the sale of the property. By specifying in their contract that the chandelier is not a fixture, it is not included or expected to be part of the sale.

Legal Determination:

It is sometimes difficult, however, to decide if an item is personal property or a fixture. The law provides for certain tests to determine the item's status: Intent of the parties, Method of Attachment, Agreement of the Parties, and Adaptation of the Item

What the law establishes about a commercial tenant

The law provides that a commercial tenant may remove these trade fixtures at the termination of the lease even though the trade fixtures were permanently attached. However, the tenant is responsible for restoring the premises to its original condition.

1. Intent of the parties:

The law seeks evidence of the parties' intent on whether an item is classified as a fixture. Examples of such evidence include the contract terms, oral discussions, or other reasonable inferences and assumptions made between the parties. When the parties have a contract that specifies whether an item is a fixture or not, the language in the contract will control. Also, when the parties discussed whether an item is a fixture or not, that discussion could be evidence of their intent.

2. Method of Attachment:

The more permanent and substantial the attachment to the real estate, the more likely the item will be classified as a fixture. For example, an item that is bolted to a wall will more likely be considered a fixture than an item that is taped.

PERSONAL PROPERTY

is all other types of tangible items that typically have a limited lifetime and are movable from one place to another. For example, an automobile is classified as personal property. An item of personal property is also known as a chattel.

FIXTURE

is an item that was once personal property but is legally considered to be real property after attachment. For example, a ceiling fan that is still in a box is considered to be personal property. Once installed, it then becomes part of the real property and is considered to be a fixture.

REAL PROPERTY

is considered to be land, any improvements attached to the land (including anything growing on the land), plus the bundle of rights associated with use or ownership.

Under the law any item is a fixture

is included as part of the real property that is being transferred or sold. If a fixture is not specifically excluded in a real estate sales contract, all fixtures are considered part of the real estate and included in the sale. Severance occurs when real property is converted to personal property.