Selling a property? Have you done you due diligence on leased fixtures? While they may be permanently attached to the property, if they are leased at the time of selling there are added considerations, you'll need to support your vendor through.
When preparing a sale and purchase agreement, real estate professionals must confirm with the vendor whether the items are to be sold as chattels or fixtures.
What’s the difference between a fixture and a chattel?
Fixtures are permanently attached to the property and included in the land title. Chattels are moveable items and are only included in the sale of the property if they are listed in the sale and purchase agreement.
If there’s a dispute on whether an item is a fixture or chattel, consider:
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How the object is attached to the property; and
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What was the purpose of the object being attached to the property.
For instance, burglar alarms are generally considered permanently attached to the property as they are usually wired into the house structure. You would reasonably expect and intend for a burglar alarm to secure the property it’s attached to, therefore, in most circumstances, the burglar alarm would be considered a fixture and remain with the property after settlement.
What happens if the ‘fixture’ is leased, and the property owner is selling?
Sometimes, due to the initial cost of installation of a fixture such as solar panels, alarm systems, or water conservation systems, these fixtures are leased to the property owner over a long-term.
If the property owner decides to sell the property, they have three options:
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They can pay off the remaining sum owing on the fixture and sell it with the property;
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They can request the purchaser take on the lease for the fixture (via an assignment); or
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They can terminate the lease, and have the fixture removed from the property, so it’s no longer part of the sale.
Undertaking due diligence for leased fixtures
As the real estate agent, if you have been informed there is a leased fixture on the property, prior to preparing any marketing materials or agreement, you should request a copy of the lease agreement. This enables you to determine which of the three options listed above is possible and what the associated costs would be.
Ensure your vendor is aware that, like all lease breaks and assignments, the process can be costly and usually requires the consent of the owner of the fixture (the lessor).
Whichever option the property owner chooses, it’s important that all potential purchasers are notified, and a corresponding further term is entered into the sale and purchase agreement. Agents might even consider an additional purchaser’s condition to provide the purchaser a reasonable amount of time to consider the costs of continuing to lease the fixture, if the property owner decides that they do not wish to remove it or pay off the outstanding sum owing.