English
Real vs. Personal Property: Rights and Ownership
Real Estate, Fixtures, and Personal Property
- Real Estate: Land and its natural (trees, water) and artificial improvements (buildings, roads).
- real property❓: right❓s, interests, and benefits associated with real estate ownership, including the rights of use, enjoyment, exclusion, disposal, mortgage, and lease.
- Bundle of Rights: Ownership described as a “bundle of rights.”
- Rights: Use, enjoyment, exclusion, disposal, mortgage, and lease.
- Fixture: Originally personal property but has become part of the real estate and cannot be removed without causing damage.
- Personal Property: Anything that is not a fixture (furniture, mobile devices, jewelry).
Distinguishing Between Fixtures and Personal Property
- Attachment: The degree to which an item is connected to the real estate.
F = k * AF: Fixture strength.k: Attachment coefficient.A: Contact area between the item and the real estate.
- Adaptability: How well the item is adapted to the real estate.
- Relationship of the Parties: Determines ownership of the fixture.
- Intention of the Parties: The most important factor, expressed in a sales contract or inferred from circumstances.
- Agreement of the Parties: Can determine ownership of fixtures.
Trade Fixtures
- Fixtures installed by a tenant for business purposes remain the tenant’s personal property (unless otherwise agreed) and can be removed at the end of the lease.
Types of Real Property Interests
- Freehold Estates: Full ownership.
- Fee Simple Absolute: Complete ownership.
- Fee Simple Defeasible: Ownership subject❓ to conditions.
- Life Estate: Right to use the property for the life of a person.
- Less-Than-Freehold Estates (Leasehold Estates): Right to use the property for a specific❓ period under a lease.
- Estate for Years: Ends on a specific date.
- Estate from Period-to-Period: Automatically renews.
- Estate at Will: Can be terminated by either party at any time.
- Estate at Sufferance: Tenant remains after the lease expires without❓❓ the owner’s consent.
Encumbrances
Limits on the owner’s rights.
- Financial Encumbrances: Mortgages, mechanic’s liens, judgments, and taxes.
- Non-Financial Encumbrances: Easements, profit a prendre, and private restrictions.
Practical Applications
- Real Estate Appraisal: Determine if items❓ are fixtures or personal property.
- Mortgage: Ensure the mortgage covers fixtures.
- Sales Contracts: Define what is included in the sale.
- Lease Agreements: Define tenant’s rights to install and remove trade fixtures.
- Litigation: Disputes over whether an item is a fixture or personal property are resolved based on the criteria above.
Chapter Summary
The chapter reviews the concepts of Real and Personal Property, focusing on associated right❓s and their impact on ownership and real estate❓❓ valuation.
Key points:
- Distinction Criteria:
- Attachment: The degree to which an item❓ is attached to land or a building. Permanent attachments increase the likelihood of being considered real property❓.
- Adaptability: items❓ designed❓ to integrate with the property and serve its function are likely to be considered part of it. Example: House keys.
- Relationship of the Parties: The relationship of parties (seller, buyer, landlord, tenant❓❓, lender, borrower) in determining the item’s affiliation to real property or personal property. Example: A court may rule that the purpose of installing an air conditioner during a property redemption is to improve the property and include it in the sale.
- Intention of the Interested Parties: The intention of parties (e.g., seller and buyer) at the time of sale is important.
- Agreement of the Parties: Ownership can be determined through explicit agreement or surrounding circumstances. Example: Fixtures installed by tenants in leased properties.
- Trade Fixtures: Fixtures placed by a tenant to operate a business in a leased property are considered the tenant’s personal property, removable at the end of the lease, with responsibility for repairing any damages.
- Real Property Definition: Land, permanent fixtures, and associated rights.
- Bundle of Rights: Ownership includes the right to use, enjoyment, exclusion, sale, lease, mortgage, and disposition by will.
- Appurtenances: Rights that follow land ownership, such as easements and riparian water rights. These rights transfer with the property.
- Real Property Interests:
- Possessory Interests (Estates): Grant the right to possess the property.
- Non-Possessory Interests (Encumbrances): Do not grant the right to possess the property.
- Freehold Estates: Include title.
- Fee Simple: The most comprehensive, including the complete bundle of rights.
- Life Estate: Automatically terminates upon the death of a specified person.
- Leasehold Estates: Grant the right to possess without ownership.
- Estate for Years: Terminates on a specific❓ date.
- Estate from Period-to-Period: Automatically renews for a specified period.
- Encumbrances:
- Financial: Mortgages, mechanic’s liens, and taxes.
- Non-Financial: Easements and private restrictions.
Conclusions:
- Distinguishing between real and personal property requires analysis of different criteria.
- The intention and agreement of the parties are critical in classifying an asset.
- Understanding the rights associated with real property is necessary for accurate real estate valuation.
Implications:
- Appraisers: Must understand the nuances to determine the real value of the property and avoid including personal assets in the valuation. They should point out any grey area to protect lenders and buyers in the loan agreement or sales contract.
- Lenders: Must ensure that mortgaged assets cover the loan value, considering asset classification.
- Buyers and Sellers: Must define items considered part of the real estate to avoid future disputes by including items in a sales contract
- Tenants and Landlords: Must define fixture ownership in the lease agreement to avoid disputes at the end of the contract.
