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Whether personal property is a “fixture” can have important consequences to buyers, sellers, and lenders.
Items which are securely affixed to land, such as buildings with concrete foundations, are generally considered to be part of the land, and will be transferred from seller to buyer as part of the land, without the necessity of specifically referring to them in a Real Estate Sale Contract.
Sellers who wish to retain fixtures should ensure they are specifically excluded from the sale, in writing, in the Real Estate Sale Contract.
Buyers who wish to ensure that non-fixtures are purchased with the land, and lenders who are financing the purchase, should ensure that potential non-fixtures are included in the sale, by specifically referring to them in writing in the Real Estate Sale Contract.
In common law provinces (ie: everywhere except Quebec), the legal principles with respect to what is and what is not a fixture is determined by judicial precedent – previously decided cases based on English common law. These principles are reasonably well settled, and involve consideration of whether the items rest on the land by their own weight, or whether the items are affixed to some degree. Items which are affixed are generally presumed to be fixtures unless it can be established that the intention of the person who affixed the item did so for the better use of the item, rather than the better use of the land.
However, applying this well known judicial principle to the facts of a given case can be difficult. Whether or not an item is securely affixed, and the intentions of the party that did so, are often in dispute.
The failure to clearly set out what is, and what is not being purchased in a Real Estate Sale Contract can lead to prolonged and expensive litigation and unexpected results.
A January, 2013 British Columbia case involving the sale of a $5.2 million cattle ranch provides a good illustration. The seller took the position that the following items were not part of the sale:
- 124 heavy concrete feed bunks, some of which were connected to each other by bolts, none of which were affixed to the land;
- An open air cattle squeeze and chute, with a roof that could be detached from the land by breaking welds and removing bolted brackets; and
- A roller miller with two bins bolted to a concrete pad and hard-wired into the ranch’s electrical systems.
The Buyer disagreed. The Court found all of the items were not fixtures, and that the seller was entitled to retain them.
You can read more about this case (Monical v. 0793545 B.C. Ltd.) in the January 10, 2013 issue of the Agricultural Law NetLetter.
Lenders who finance buildings or equipment which might be affixed to land must also comply with a number of rules to ensure they maintain their security if these items are affixed to the land. This issue will be discussed in an upcoming blog.