When is it that personal property becomes real property?
This is part two of our blog series on defining property. Our first one is . Our prior blog explained that in real estate law, personal property could sometimes become real property. That transformation is discussed in this blog. The conversion of personal property into real property is a common question among commercial tenants who install trade fixtures as part of their underlying business.
As a general rule, an item of property that is attached to, and considered a part of, real property is considered a fixture. Civ. Code, § 660. Personal property, for example, is an item of property that could become real property by attachment – i.e., a fixture. This is significant because in most cases, once an item of property is considered a fixture, that item of property becomes the property of the person owning the underlying real property. Indeed, this is established by law. “When a person affixes his property to the land of another, without an agreement permitting him to remove it, the thing affixed … belongs to the owner of the land ….” Civ. Code, § 1013.
Thus, upon a future conveyance of the real property, the person receiving title to the real property also receives title/ownership to the fixture. Civ. Code, § 1084; Trask v. Moore (1944) 24 Cal. 2d 365, 370. This is a strongly-rooted concept to the extent that criminal liability applies to a person who wrongfully removes a fixture. Pen. Code, §§ 495, 501, 602; People v. Brunwin (1934) 2 Cal. App. 2d 287, 289.
Based on the above, it is important to know when an item of property, such as personal property, is regarded as being a fixture “affixed” to real property. For this, we can turn to three different standards used by the courts of this state. Those standards are (1) the common law of accession, (2) the test under Civil Code § 660, and (3) a factor-based test.
The common law of accession holds that a fixture results when property, such as personal property, is so merged into a structure on real property that it can no longer be identified, as when a piece of lumber is incorporated into the construction of a building. See, e.g., Alden v. Mayfield (1912) 163 Cal. 793, 795–796.
Civil Code § 660 provides that “[a] thing is deemed to be affixed to land when it is attached to it by roots, as in the case of trees, vines, or shrubs; or embedded in it, as in the case of walls; or permanently resting on it, as in the case of buildings; or permanently attached to what is thus permanent, as by means of cement, plaster, nails, bolts, or screws ….”.
Finally, courts that apply a factor-based test evaluate the following.
1) the manner in which the item is annexed to the underlying realty;
2) its adaptability to the use and purpose for which the realty is used;
3) the intention of the party annexing the item;
4) the difficulty of removal of the item;
5) the destruction caused to the realty by its removal; and
6) the relationship between the parties.
Under the factor test, the intention of the party annexing the item of personal property to the real property is the most crucial factor and the factor most heavily weighed by the courts. Crocker National Bank v. City and County of San Francisco (1989) 49 Cal. 3d 881, 887–888. This is especially true of commercial leasehold interests in real property.
For commercial tenancies, the courts presume that tenants attach personal property to benefit the commercial tenant’s own use of the premises and not to incorporate it permanently into the real property. O.L. Shafter Estate Co. v. Alvord (1906) 2 Cal. App. 602, 604. This is only a presumption and courts consider other matters as well to determine the parties’ intentions. For example, courts will undoubtedly turn to the actual lease.
Commercial tenants should consult with an attorney to better understand everything the courts evaluate to decide whether an item is a fixture. Our real estate attorneys at Schorr Law have a great deal of experience with real estate matters and disputes involving commercial leases. To see if you qualify for a free 30-minute consultation, contact us today!