Here is the third post in our series drawing on appraisal concepts from our unpublished easy-to-digest BPO course content. This series showcases the fundamental real estate knowledge needed by a DRE licensee to develop a Broker Price Opinion (BPO) to be handed to a client. We start with defining property and conveyancing of property rights.
Why this article matters to your practice: Property pricing maxed out in early 2022, following a very long cycle of buyers and tenants chasing the rising price of property rights, such as possession, since mid-2009. Concern for an evaluation was dropped from the price-setting conversations during this period of booms. That has changed. Rational judgment – caution, but not yet understanding – has returned for most all prospective buyers and tenants. And with it, brokerage services, and the necessity of comparable market analysis (CMA) – the professionally produced BPO, aka Appraisal.
Fixtures are of two types
A fixture is personal property which has become attached to real estate. When intended to be permanently attached, it becomes part of the real estate as an improvement and is conveyed with it. [CC §660]
Factors used to determine whether an item is a permanent fixture or removable fixture include the:
- manner of attachment;
- agreement between the parties;
- relationship of the parties;
- intention of the parties; and
- adaptability of attachment to the real estate’s use. [San Diego Trust & Savings Bank v. San Diego County (1940) 16 C2d 142]
These factors can be memorized using the mnemonic device MARIA.
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To determine whether an item is a permanent improvement to the real estate or a removeable fixture, the most important factor is the intent of the parties.
Intent to make an item a permanent part of the real estate is established by:
- the manner of attachment; and
- the use and purpose of the item installed.
For example, when an item is attached to real estate by bolts, screws, cement or the like, the item becomes part of the real estate. Items of such weight and size they are maintained in place by gravity is sufficient to give the item the character of permanence as a component of the real estate.
Also, the item may be constructively attached when the item is a necessary, integral or working part as a component of the improvements on the real estate.
Two types of fixtures exist for classifying items installed in a building:
- real estate fixtures; and
- trade fixtures.
A real estate fixture is personal property attached to the real estate. It becomes part of the real estate it is attached to and is conveyed with the parcel. [CC §§660; 1013]
For example, a tenant rents an office and builds bookshelves into the wall rather than merely anchoring them to the wall. As a result of the permanence of the bookshelves, they become part of the improvements located on the real estate.
When the lease expires, real estate fixtures are owned by the landlord — not the tenant who installed them. The landlord takes possession of the real estate fixtures as forfeited or surrendered to the landlord, unless the lease agreement provides for restoration of the parcel by removal of the tenant improvements (TIs) by the tenant.
The conveyance of real estate fixtures from tenant to landlord by expiration of the lease is called reversion. [City of Beverly Hills v. Albright (1960) 184 CA2d 562]
Conversely, trade fixtures do not revert to the landlord on expiration of the lease.
A trade fixture is an improvement attached to the real estate by the tenant which is unique to the operation of the tenant’s business, not the use of the building. Thus, trade fixtures attached to the real estate are considered personal property.
For example, in the instance of a beauty salon, trade fixtures would include:
- mirrors;
- dryers; and
- sink bowls and wash stations. [Beebe v. Richards (1953) 115 CA2d 589]
Trade fixtures are removed by the tenant on termination of the tenancy, unless agreed to the contrary with the landlord. The removal cannot damage the use of the real estate. [CC §8444]
Notice of nonresponsibility
Tenants occasionally contract for construction of improvements on the leased premises. Any mechanic’s lien by a contractor for nonpayment initially attaches to the tenant’s leasehold interest in the parcel of real estate. [CC §8444]
However, the mechanic’s lien for unpaid labor and materials also attaches to the fee simple interest held by the landlord when:
- the landlord or the landlord’s property manager acquires knowledge the construction is taking place; and
- they fail to post and record a Notice of Nonresponsibility. [See RPI Form 597]
A Notice of Nonresponsibility is a written notice:
- posted in a conspicuous place on the premises within ten days after the landlord or their property manager first has knowledge of the construction; and
- recorded with the county recorder’s office within the same ten-day period. [CC §8444]
However, the landlord who becomes aware of the construction and fails to post and record the Notice of Nonresponsibility does not become personally liable to the contractor. Rather, the contractor’s mechanic’s lien attaches to the landlord’s fee ownership in the real estate. The lien is enforced by a judicial foreclosure sale conducted to collect for unpaid labor and materials delivered to improve the real estate under a contract with the tenant. [Peterson v. Freiermuth (1911) 17 CA 609]
Further, when a lease agreement provides for the tenant to make mandatory improvements, a mechanic’s lien attaches to the landlord’s fee interest even when the landlord posts and records a Notice of Nonresponsibility.
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| WATER RIGHTS | Surface water | Ground water |
| Category of water | Consisting of watercourses, lakes, springs, marshes, ponds, sloughs and any other water flowing over the surface of the earth caused by rain, snow, springs or seepage. | Consisting of percolating, subterranean bodies of water located in underground basins. [Restatement of the Law 2d Torts §§841, 845, 846] |
| Rights | Riparian rights – a landowner’s appurtenant right to withdraw water from an adjacent river or lake for beneficial use on their riparian land. | Overlying rights – a landowner’s right to the use of ground water below the surface of their land. |
The right of an owner of a parcel to use riparian water is an appurtenant right attached to and transferred with the ownership of a parcel. [CC §§658, 662]
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An owner of a parcel has overlying rights to an allotment of water which is measured by the amount of groundwater in the basin where their parcel is located. An owner has equal overlying rights against other landowners with overlying rights to a basin’s groundwater percolating underneath their land, subject to their reasonable use of the water.
Overlying and riparian rights are analogous to one another, except for the limitations placed on overlying owners to use groundwater and riparian owners to use surface water. [City of Barstow v. Mojave Water Agency (2000) 23 C4th 1224]
Riparian and overlying water rights are part of the ownership of a parcel and remain with the title to the parcel when it is transferred. Water rights are not personal property and thus may not be assigned or used for the benefit of other parcels.
However, the right to the use of water located within the state of California may be acquired by appropriation by applying for a permit from the State Water Resources Control Board. [Wat C §1381]
On the approval of an application for an appropriation permit by the Board, the permit is issued granting the appropriator the right to use water only to the extent and for the purpose described in the permit, called appropriation rights. [Wat C §1381] [See RPI ebook: Legal Aspects of Real Estate, Chapter 8: Water Rights]
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