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How To Determine A Fixture Is Part Of The Property
We use the term “real estate” all the time to talk about what we do. Yet many investors, landlords, and regular home owners don’t have a good idea what real estate describes specifically.
We implicitly understand that a house we want to buy is the real estate in consideration.
From a legal standpoint real estate consist of, and not limited to, the following:
- Liens against fixtures
- Ownership of plants, trees, and crops
- Water rights
- Vertical land (e.g. air rights)
For regular acquisitions and sales, these details are usually left to their defaults with both parties satisfied. But at a more sophisticated level of investing, savvy investors may see very specific items that come with a piece of real estate which has more value than anyone else has realized.
Fixtures that come with real estate has always been a factor of contention for buyers and sellers.
As you might expect, buyers would want fixtures of value to be included as part of the deal. And sellers are always wary of being a victim of getting ripped off by shrewd buyers.
Whether an object (fixture) is part of the real estate in question depends on 4 tests.
1) Manner of attachment
This refers to how the object is attached to the land.
In most circumstances, when an object that used to be personal property is imbedded by means of ways like nails, bolts, cement, etc, it becomes a permanent fixture.
For example, let say you have a cement tuck filled with cement parked in your driveway. The cement is your personal property and not part of the land. But once you pour the concrete material down on your driveway, it becomes part of the land.
Items that were once personal property will become real estate when they become part of a building. For example:
Items that do not become permanently affixed to the land remain as personal property, and rightly so.
2) Adaptation of objects
The first test mentioned above used to be adequate in categorizing fixtures and non-fixtures in a house.
But as you know, we are human beings. And we like to make things complicated just so that we can work out brains a little more and make ourselves feel clever.
Let’s say for example that you are selling one of your rental properties. And it as a set of custom made Persian curtains tailored specifically for a hexagon shaped window. You could very well take it down and crop it for another property of yours. Now the buyer insist that is comes with the deal.
The million dollar question now is… Is it a fixture? Or personal property?
The simple answer is that it is a fixture and should be included in the sale or rental of the house. It was made specifically for that window and therefore an unquestionable fixture. Anyway feinting ignorance is usually just a tactic sellers do to get some leverage over negotiation.
They usually know (even in good faith) that the curtains go with it.
If those curtains have real monetary and emotional value to you, take them down and keep them before opening the house for viewing. This will eliminate all these problems and dilemmas in the first place.
3) Existence of agreement
So let’s say that you are too lazy to remove the premium quality curtains during viewing, yet you want to keep them for yourself instead of including it in a sale.
Surely there is something you can do to explicitly state so?
Of course there is! Capitalism has transformed this world into one of black and white.
You can draft an agreement for the brokering agent so that he/she is clearly aware of an existence of an agreement concerning those shiny curtains you treasure.
This is so as to clearly and explicitly state that the curtains are personal property and will not be part of the transaction. And since you have come this far, you might as well list down all the other items you are not ready to part with too.
Just be mindful not to get too greedy in your actions. As a buyer, if I walk into an open house and have to go through a list of 150 adaptation items (see point #2) not included in the sale, I would be turned off. It is misleading and a form of practice in bad faith.
4) Relationship of parties
The fourth test is one where you examine the relationship of the parties involved in the deal.
This is common sense really. But this fourth test was introduced because more and more greedy buyers attempt to take advantage of regular homeowners when trying to buy their homes.
You wouldn’t believe how desperate flippers can get when trying to tie down a good deal.
For example let’s say a tenant took up a 3 year lease on a property. And since 3 years is a pretty long time in this market he took the liberty of bolting on exercise equipment so that he can workout in a mini gym at home.
3 years later he decides to move out as he can no longer stand your nagging behavior. Now… does those exercise equipment belong to the tenant or you as the owner landlord.
As mentioned earlier. This is common sense. It belongs to the tenant. And this test was created as landlords and buyers get greedy. Making the conceptualization of this fourth test necessary.
Tenants can however choose to give up the fixtures. Or landlords can insist on the proper removal of them before the tenant vacates the house. In this instance, landlord has the security deposit as leverage.