By Jones Osborn II

We have all used the word "fixture" to describe something that has become attached to a building, or which has become something of a permanent item.

Under the law of real property, however, it has a more precise meaning - it is an item of personal property that has become real property, yet retains its separate identity. A perfect example is a water heater that has been installed in a house. It has become a part of the house, yet retains its identity as a water heater. This could be distinguished from a piece of lumber, for example, because even though the lumber becomes part of the house during construction, it does not retain its separate identity. It is just a part of the house. Therefore, it is not a fixture.

The Test. The law establishes a three part test to determine when an item of personal property has become a fixture. First, there must be an intention that it become a fixture. A water heater which is temporarily installed while the old unit is being repaired does not become a fixture, because the owner does not intend to make it a part of the realty.

Second, the item must be reasonably adapted to the use to which the property is put. A water heater installed in a house is adapted to the use of the property as a residential dwelling and becomes a fixture. However, if the same water heater is stored unused in a barn, even if it is bolted down, it does not become a fixture because it is not adapted to the uses made of a barn.

Third, the item must be "annexed," or fastened to the property in some manner. A water heater that is hooked up to the power source and the water pipes in a home is "annexed," and becomes a fixture. A water heater sitting loose in a garage does not.

Of these three factors, intention is the most important. If the person installing the item intends for it to become a fixture, it normally does, and vice versa.

Trade Fixtures. There is a special kind of fixture known as a "trade fixture." A trade fixture is property that meets the definition of a fixture, but which is attached to the property by a tenant for the tenant's business purposes. A common example is the shelving placed in a store by a tenant to display merchandise. A trade fixture can also consist of such items as built-in furniture, a special cooling system for computers or food storage, and machinery. Trade fixtures are treated differently than other kinds of fixtures by the law, which is explained in more detail below.

The Consequences. If an item of personal property becomes a fixture, it ceases being governed by the law of personal property and starts being governed by the law of real property. This has a number of consequences.

First, fixtures go with the realty when the realty is sold. If you sell a building, it automatically includes the fixtures unless the parties explicitly agree otherwise. A sale does not normally include personal property located on the property.

Second, fixtures installed by a tenant belong to the landlord at the end of the lease, without payment. An exception is made for trade fixtures, which may be removed by the Tenant prior to the expiration of the lease, but not after.

Third, fixtures and personal property are mortgaged in different ways. A fixture is mortgaged by recording a mortgage, deed of trust, or fixture filing with the county recorder of the county in which the property is located. Personal property is encumbered by filing a financing statement with the secretary of state in the state of the debtor's residence (or if the debtor is a registered entity such as a corporation, in the state where it is chartered). If the wrong method is used for the type of property being encumbered, the intended lien may be lost or subordinated to another claim against the property.

Fourth, the rules governing the priority of liens are different. Under some circumstances, a lien against personal property may become junior to a mortgage against the real property when the personal property becomes a fixture.

Fifth, fixtures can be lost to a secured creditor when a mortgage, deed of trust, tax lien, or other encumbrance against real property is foreclosed. However, personal property located on the foreclosed property is not taken by the foreclosure and may be removed by the owner who is being foreclosed upon.

Sixth, the government has to pay for fixtures when condemning real property (as for a freeway right-of-way), but does not have to pay for personal property, which may be removed by the owner.

Conclusion. A fixture is an item of personal property which has become a part of the realty, yet retains its separate identity. The classification of such property as a fixture or as personal property has a number of important legal consequences. Consult legal counsel when accepting a lien on personal property which may become a fixture to insure that your position is protected.