Fixtures--what are they? Lawyers and non-lawyers use the word differently. The legal definition of a fixture is personal property that's permanently attached to real property, and therefore becomes part of the real estate. (1) To translate, a fixture is anything that's fixed in place. A freestanding display case is most probably not a fixture; permanent shelving almost certainly is. If you own a beauty salon, you may think of all your equipment as fixtures. But the law views your moveable styling chairs one way, and your built-in shampoo sink in a different light.
Your next question may be -- who cares? You should, because who gets to keep fixtures at the lease end causes all kinds of problems--and fills volumes of court decisions. In leased commercial space, the fixture question is important throughout the rental relationship.
Part of the initial lease negotiations should be who owns the fixtures, also called improvements. This is where that legal definition comes in. Anything permanently attached to real estate becomes part of the real estate. And you don't own that--your landlord does. (2) Unless your lease says otherwise, air conditioners, lights, cabinets and shelves belong to the landlord. More important are expensive specialty items like medical equipment (3) or other professional tools like that beauty salon shampoo sink. Tenants sometimes assume that if they paid for it, it's theirs. Not so. Even if your landlord has no use for the fixtures, she can keep the equipment and sell it.
So who determines who owns what? Either the general principles of law as described earlier, or your lease. For a commercial lease agreement with a solid and understandable fixture clause that protects the tenant, see paragraph 6 of the Business Resource Center's sample, "
Commercial Property Lease." In initial lease negotiations, improvements are more open to negotiation and hard bargaining than any other contract term. (4) Sometimes a commercial tenant may rent the bare shell "as is." But most commercial leases provide for a move-in (sometimes called a build-out or tenant improvement) allowance, which pays for customizing the rented space to the tenant's needs. Any construction costs over the allowance are the tenant's responsibility. A workletter--a document separate from the lease and agreed to by both parties--is generally used to detail what work will be done. (5) See "Tenant Workletters and Construction Provisions in Commercial Leases" at www.texasbarcle.com/articles/5adre/mitchellx.html for detailed coverage. (Regarding IRS treatment of improvements, see "Construction Allowances...".)
During the rental, other improvements may be added. Most commercial leases require a landlord's written permission for these. The tenant generally bears the full expense of later remodeling and additions. (6) Be just as clear--in writing--about who owns these additions as you were in the original lease.
At the end of a lease, you'll have to remove the fixtures that you own (although technically they're not fixtures if you're taking them with you) in a way that doesn't damage the landlord's property. You'll probably be required to paint, plaster, re-floor, etc. any areas left bare. You'll also have to pay for moving and re-installation at your new address.
This brings us back to the original lease negotiations. Maybe you don't WANT to own everything that's added to the bare shell. If it's yours and you leave it behind, you may be liable to the landlord for his costs in removing the fixtures and restoring the space.
Winston Churchill said: "We shape our buildings; thereafter they shape us." (7) It may be more cost effective to shape YOUR space with lights, window and floor treatments, and cabinetry that remain as the landlord's property, while you retain ownership of expensive professional equipment. Only you can decide.
By Paula Damiano
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Sources/reference notes:
(1) Colorado Division of Real Estate. Real Estate Manual. GLOSSARY DEFINITIONS OF COMMONLY USED TERMS. http://www.dora.state.co.us/real-estate/manual/glossary.htm.
(2) Hardwick on Real Estate. "Knowing the language a valuable thing" by Phil Hardwick. http://www.msbusiness.com/mbj970303/hardwick.html.
(3) Signing a Real Estate Lease - 3 by Jim Passmore. http://www.worksmartdoc.com/Signing_Lease_3.htm.
(4) Ibid.
(5) Leasing Retail Space. Institute of Real Estate Management. (National Assn. of Realtors, 1990) At page 169.
(6) Leasing Retail Space. At page 160.
(7) http://www.vanmell.com/intro.htm.
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