Affixing the Legal Status of Real Property Fixtures
Fixture or Personal Property?
A common question that arises in Florida real estate transactions concerns Florida real estate law and house fixtures. Buyers and sellers alike wonder whether an item is a fixture that is part of the real property or is personal property that can be removed upon sale of the property. For example, sellers frequently ask questions regarding the status of ceiling fans, appliances, doorknobs, and so forth. Will the seller keep those items or will they transfer to the new owner along with the property? The question hinges on the definition of the term fixture.
Necessarily and legally, property in the State of Florida can only fit into one of the two categories: real property, which is property affixed to land such as a house, condominium, etc. or personal property – items such as cars, boats, and jewelry that are not affixed to land. A fixture is a type of property that falls in a legal grey area on the line between real and personal property. Therefore, it becomes necessary to define what exactly constitutes a fixture.
What are Fixtures?
The term fixture generally refers to a piece of personal property that has been actually or constructively affixed to a structure so that the personal property cannot be removed from the real property without causing injury to the real property. In essence, a fixture is a piece of personal property or chattel which, when affixed to real property, becomes merged with the real property to which it is affixed. For example, ceiling fans may be considered fixtures as they are personal property affixed to and so merged into the real property. Other examples include: workbenches attached to walls in a garage and racks or shelves affixed to garage walls or elsewhere. The FAR/BAR contract includes fixtures as follows:
There is a three part test that is generally applied to determine if a piece of property at issue is in fact a fixture. The property will be considered a fixture if it is: (1) annexed or physically connected to the realty, either actually or constructively; (2) adapted or applied to the use or purpose to which that part of the realty to which it is connected is appropriated; which is (3) intended by the party to make the article a permanent accession of the real estate.
Items Not Provided for in the FAR/BAR Contract
As to any fixtures and personal property left within the home that are not explicitly provided for or excluded in the contract, it can become difficult to determine the legal status of the property in regards to who owns what subsequent to closing. Under a valid sales contract between a purchaser and seller of real estate, the fixtures attached to the premises will vest in the purchaser after closing if they have not been removed by the seller prior to closing and the buyer hasn’t wrongfully prevented the seller from removing such items.
Third Party Interest in Fixtures
What happens to fixtures included in a sale when they are subject to an interest by a third party? Suppose, for example, that a fixture is being financed by the seller of real property and the buyer purchases the fixture as included in the sales contract without knowledge of the financing arrangement. Suppose further that the financing company then contacts the buyer after the sale and asks for the return of the fixture. Who owns the fixture?
In general, a good faith purchaser who is unaware of a prior agreement in regards to a fixture will not be bound by the agreement, while a purchaser that does know of an agreement will be bound by that agreement. In regard to our prior example, a purchaser who knew that the fixture was being financed would be obligated to return the chattel or assume the financing. If the purchaser was ignorant as to the agreement, title to the fixture would vest, by operation of law, in the purchaser and the financing company would be left to seek reimbursement from the seller.
However, if the fixture was subject to a UCC line, the purchaser would still be subject to the lien of the lender. This is why it is important that Buyers insist on receiving a Bill of Sale at closing as required under the FR/BAR contract (Paragraph I.(ii)), whereby the Seller warrants title to any fixtures and/or personal property conveyed with the sale.
Fixtures and Leased Property
A frequently-used lease provision provides that all “improvements to the Real Property being leased by Tenant are the sole property of Landlord.” Who owns the fixtures that are used by the Tenant in the property? For example, are bar owners entitled to sinks they install in leased premises? Is a carpenter who leases entitled to return of saws and workbenches affixed directly to the walls of the premises? After their lease terminates, is an exotic dancing business entitled to return of the poles they installed?
In a landlord/tenant relationship, Florida follows the trade fixtures doctrine. This doctrine states that “trade fixtures” are property placed by a tenant for purposes of their trade. Such fixtures are considered as personality rather than realty and may be removed by the tenant. So provided the improvements to the lease premises are used in connection with the tenant’s trade or business, they may be removed by the Tenant.
Thus, while a fixture is considered part of the realty in some instances, it still remains personal property as to the one who has the right to remove it. If a person is wrongfully denied the right to remove the property they may bring an action (lawsuit) to recover possession thereof. Whether the property is part of the realty or can be separated is considered a question of fact, or a mixed question of law and fact.
Fixtures and Mortgages
It is also worth noting that, in a mortgagee/mortgagor relationship, property that is affixed to the real estate by the owner before obtaining a mortgage is presumed to be a part of the realty and will be included in the mortgage interest. Such property is therefore subject to ownership by the lender in a foreclosure action and removal of those fixtures may expose the property owner to additional incurred liability.
If you need information about the legal status of fixtures in a property you are considering buying or selling, please contact the attorneys at Barry L. Miller, P.A. They are experts in all aspects of real estate law concerning sales, exchanges, leases, and mortgages. Get in touch with us today via telephone at 407-423-1700 or email at info@BarryMillerLaw.com for a consultation to determine your legal rights under Florida Real Estate Law.