In commercial real estate, there can be confusion about what are trade fixtures in a property. This can be an important issue when it comes time to make a build-out and who owns the associated equipment after the lease is up. The line can be blurred when a tenant files for a tenant improvement and what is actually considered a tenant fixture and what becomes a permanent part of the property.
A trade fixture is equipment that a tenant installs on the property they rent to conduct business. Often this will be heavy equipment that requires installation and that is unique to the tenant’s business. This can include things like a pizza oven in a pizza restaurant or display counters for jewelry stores. It is important that these items be clearly identified as a trade fixture in the landlord’s property lease so that when the lease ends it can be clear who owns them.
The items need to meet three criteria to be considered a trade fixture. They must be attached to the property, they need to be necessary for the tenant’s business and they must remain there when the lease is terminated. If the tenant fails to remove these items, they could become a permanent part of the property and be sold with it when the lease ends.
When it comes to a new commercial lease, be sure to clearly define what is a trade fixture and what is not so that when the lease ends there are no misunderstandings over ownership of these items. Doing so can save both parties a lot of headaches down the road.