Topic 8.2: Real vs. Personal Property >

Learning Objectives

After successfully completing this topic, you will be able to
• distinguish between the terms personal property and fixture, and
• list the three major court tests for whether an item is real or personal property.

Real Property

Real property is land and improvements on the land. If an item is not real property, it is personal property.

Personal Property

Personal property usually consists of items having a limited life, and which are easily movable from one place to another. Personal property (also called chattel, or personalty) includes any property that is not real property. If it can be moved, it’s probably personal property.

Real property may become personal property by severance, such as cutting trees. Personal property can become real property by attachment (fixtures). For example, a fence is a fixture.

Fixtures

A fixture is an item that was once personal property, but is now legally considered to be real property. It is important to determine whether an item is a fixture that must stay in the property when sold, or personal property that may be taken by the seller at the time of sale. It’s also important for many other reasons, such as tax assessments, market value appraisals, and insurance coverage.

When a contract doesn’t state whether an item is to be considered real property or personal property, and the parties disagree about whether it should be included, sometimes the courts decide by applying these three tests (AIM):

• Intent of the parties – Did a witness hear conversations? It’s important to show intent as to whether an item is real or personal property by specifically describing the item in a lease or contract of sale.
• Relationship or agreement of the parties – Was the relationship landlord and tenant? If so, the tenant might be required to leave the property. If it was a commercial lease, the tenant might be allowed to take trade fixtures (see below).
• Method of attachment – Will removal damage the property?
• Adaptation of the item – Was it designed for the property? An example would be an air conditioner that is built into a wall. Because of its adaptation, it would be a fixture. If it were installed as a window air conditioner, it would likely be personal property.

Listing and sale contracts should clearly specify which items are considered real property in the transaction and any personal property that is to be included

Usually, fixtures are part of the real property. If a property is leased, at the end of the lease, the landlord owns the fixtures. Trade fixtures are fixtures that are used in a business and remain personal property that can be removed before the end of the lease.

Trade Fixtures

An example of trade fixtures are the refrigerated cases in a grocery store. At the end of the lease, the business owner may remove the trade fixtures.