Sunday, November 3, 2013

The Top Five: Fixtures

Five things to know about fixtures for purposes of the MBE:

(1) A fixture is a piece of personal property that has been so affixed to land that it is no longer considered personal property. The significance of a fixture is that it passes along with ownership of the land.

(2) It's often difficult to determine whether an item of personal property should be considered a fixture. The test to apply is an objective one; namely, whether the objective intention of the party who made the annexation was to make the item a part of the real property. When deciding whether this objective test has been satisfied, consider the nature of the article, the manner of attachment, and the amount of damage that would be caused by removal of the object.

(3) A commonly tested MBE area concerns constructive annexation. Constructive annexation occurs when an article, though not physically annexed to the property, is still considered a fixture if it is a necessary aspect of the realty. (For example if removing custom-made curtain rods would disrupt the design of a room, the curtain rods may be deemed a fixture even though they have not been affixed to the property.)

(4) Between landlord and tenant, first determine if there has been an express agreement regarding fixtures, as that will control. Absent an agreement, a tenant is deemed to lack the intent to permanently improve the property, and may therefore remove any personal property that has been attached to the real property provided that doing so will not damage the real property. Note that the personal property must be removed by the end of the lease term (or if the tenancy is indefinite, within a reasonable time after termination of the tenancy). Any damage caused by removal of the property must be paid for by the tenant.

(5) Situations arise in which a landowner affixes a piece of personal property to real property, and the seller of the personal property retains a security interest on that property while at the same time a mortgagee retains a security interest (a mortgage) on the real property. If the landowner defaults on both loans, it must be determined who, among the mortgagee and the seller of the personal property, has priority. In such a situation, the seller has priority (and can therefore collect first on his security interest), provided he records his security interest with a "fixture filing" within 20 days after the personal property is affixed to the land. The seller must, however, compensate the mortgagee if removing the personal property causes damage to the real property.

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