Trade Fixtures Explained: How Trade Fixtures Work in Real Estate

Trade fixtures are items in a leased property that the commercial tenant purchases and installs in order to conduct business. These items include things necessary for the tenant's business to operate, such as commercial appliances, as well as items specific to the tenant's company, such as signage featuring the name of the business. To qualify as a trade fixture, the lessee must be able to remove the fixture from the leased premises without causing damage. Items such as wall-to-wall carpeting, restroom toilets, or fluorescent light panels would not qualify.

In some cases, an item's designation as a trade fixture is clear. A sign with the company's name is only useful to that company, so the property owner would expect the tenant to remove the sign upon termination of the lease. In other cases, a fixture's status as a trade fixture may be unclear. If a business installs decorative lighting or a commercial oven, there may be questions as to whether those items remain with the property or should be removed after the lease ends.

Examples of trade fixtures include industrial equipment, product display counters, and display cases. Trade fixtures may also consist of chandeliers and shelving. Trade fixtures are attached directly to the property, so items such as restaurant tables do not qualify. These unattached moveable items fall under the category of chattel fixtures and are presumptively assumed to be the property of the tenant in commercial real estate law.

The status of some fixtures may depend on the specific wording of the lease. Commercial refrigerators, walk-in freezers, and commercial ovens or stoves that are installed by the property owner, builder, developer, or landlord may be considered the property of the building owner. If the tenant installs a piece of equipment that was not on the premises before the tenancy began, that equipment is typically considered the property of the tenant.

Many commercial buildings are leased with equipment already in place, and some landlords agree to make specific changes to the building before the lease term begins, so determining who owns that equipment at the start can reduce future disputes.

A trade fixture is the property of the tenant, so the tenant is responsible for both the initial installation and removing the fixture upon the expiration of the lease. State laws vary regarding the amount of time a tenant has to remove trade fixtures and other personal property after a lease ends. To avoid conflict or confusion, the specific timeline for trade fixture removal must be part of the original lease agreement. When preparing a commercial real estate contract, this timeline should allow sufficient leeway after the lease expiration for the property owner to prepare the building for the next tenant.

The removal of a trade fixture should not damage the property. If the tenant causes damage to the commercial property when removing a trade fixture, they are responsible for the cost of any damage.

If a tenant fails to remove a trade fixture within the timeframe designated by state law or the original lease agreement, the trade fixture may become the landlord's property. This process is called accession. Bankruptcy and early lease terminations are common reasons for trade fixture abandonment and subsequent accession of the fixtures.

If accession occurs, the landlord may choose to retain the fixtures that were left behind and offer them as regular fixtures for the next tenant. Otherwise, the landlord may have to remove the fixtures before they can lease the building to a new tenant.

Disputes in real estate law may occur if a tenant makes improvements to the property and the original lease agreement does not specify whether newly installed features on the property belong to the business owner or the property owner. To determine whether a change to a building is a trade fixture or an improvement, consider the following distinctions:

• Permanence: Items that cannot be easily removed are considered improvements, not trade fixtures. Examples of real estate improvements may include soundproof windows and plumbing fixtures. Removing these items would cause damage to the building, so they are presumed to be improvements or integral fixtures that belong to the property owner, even if the tenant paid for and installed them.
• Custom sizing: If the commercial real estate contract does not specify the ownership of the item, one potential determiner of the fixture's status is whether it was installed specifically to fit the space. One example of this is custom built-in shelving, which would likely be an improvement rather than a trade fixture.
• Prior agreement: Improvements can be negotiated in the initial lease agreement or as a separate agreement between the parties. The tenant and landlord should create a formal contract specifying the nature of the property improvement, who is responsible for the installation and removal of the items, and what happens to the items after the end of the lease.

The designation of items as trade fixtures or property improvements can and should be spelled out in the commercial real estate contract. Listing each item and which party owns that item helps prevent later disputes over the removal or abandonment of various fixtures at the end of the lease.

All investments, including real estate investments, come with inherent risks which may involve the depreciation of assets, financial losses, or legal ramifications. The information presented in this article is for educational, informational, and referential purposes only. Consult a licensed real estate or financial professional before making any legal or financial commitments.

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