It is the day before the Closing Date, and Bobby Buyer and his realtor are performing the customary final walk-through inspection of the Property. As Bobby Buyer walks outside to admire the storage shed in the backyard, he is shocked to find that Susie Seller has removed the storage shed where he planned to have his new workshop. Bobby Buyer is baffled and later discovers Susie Seller believes the storage shed is not included in their Contract and should have been separately negotiated and addressed. Bobby Buyer reaches out to his trusted real estate attorney for some answers and learns the question is not what he said or she said; it’s whether or not the storage shed is deemed “Real Property” or “Personal Property.”
Real Property v. Personal Property:
In both the FR/BAR “AS IS” Residential Contract for Sale and Purchase (“As Is Contract”) and FR/BAR Residential Contract for Sale and Purchase (“Standard Contract”), there are two types of property embedded in the definition of “Property”: Real Property and Personal Property. Real Property is defined not only as the land set forth in the legal description but, by default, encompasses “all existing improvements and fixtures, including built-in-in appliances, built-in furnishings, and attached wall-to-wall carpeting and flooring.” If improvements and fixtures are permanently attached to or affixed to the land, such as a house, deck, or driveway, then these are included in the definition of Real Property.
Personal Property by default is defined as: “range(s)oven(s), refrigerator(s), dishwasher(s), disposal, ceiling fan(s), light fixture(s), drapery rods and draperies, blinds, window treatments, smoke detector(s), garage door opener(s), thermostat(s), doorbell(s), television wall mount(s) and television mounting hardware, security gate and other access devices, mailbox keys, and storm shutters/storm protection items and hardware.” There is additional space following this default definition for buyers and sellers to include and/or exclude items as applicable for their respective transaction.
Let’s go back to Bobby Buyer and Susie Seller. If the storage shed is attached to or affixed to the land, the storage shed would be included in the definition of Real Property as an improvement and fixture and be part of Billy Buyer’s purchase. On the other hand, if the storage shed is not attached to or affixed to the land, it would not be included in the definition of Real Property, and Susie Seller would have been free to remove the storage shed unless specifically addressed and included in the Contract.
Of note, under Paragraph 11 of the As Is Contract and Standard Contract, Susie Seller must maintain the Property in the condition existing as of the Effective Date. Assuming the storage shed was deemed Real Property, Susie Seller could be in breach of her Maintenance Requirement if she removes the shed before Closing. This would require her to escrow at Closing a sum equal to 125% of the estimated cost to meet the Maintenance Requirement (i.e., install the storage shed back on the land or replace with the equivalent).
Accordingly, we encourage you to consult with your trusted real estate attorney for guidance if you have any questions or concerns relating to Real Property and/or Personal Property when preparing a Contract for your buyers or sellers.