Farm tenants often make improvements to the farm they are leasing. Building or repairing sheds or barns are an example, as is a tenant purchasing and installing irrigation equipment. However, before doing so, tenants should consider the legal status of these investments. This issue is important as almost 40% of U.S. farmland is rented/leased (Figure 1).
Legally, property comes in two forms, real and personal. Real property is land and everything growing upon or attached to it. Personal property is essentially everything else. A fixture, however, is personal property that becomes real property by being incorporated into or attached to real property. Figure 2 provides an illustration of these concepts.
Whether an improvement qualifies as a fixture is important because fixtures are owned by the owner of the real property to which they become attached, regardless of who owned them before they were attached. Absent an agreement to the contrary, a landowner is entitled to keep fixtures at the end of a lease. Further, a tenant’s insurance may not cover a fixture, and if the landowner has a mortgage, the landlord’s lender may have a security interest in it, while the tenant’s lender may not.
Courts typically consider three factors when determining whether personal property has become a fixture. The first is whether the object is physically or constructively attached to real property. Constructive attachment occurs when the object comprises a necessary, integral, or working part of another object that is physically attached to real property. The second factor is whether the object is adapted to the use of real property. Thus, the more useful an article is to normal operations conducted on the property, the more likely it is to be considered a fixture. However, the most important of the three factors is whether there is evidence that the tenant intended to attach the object permanently. Courts are likely to presume such intent if removing the object would cause material injury to the real property or other fixtures. However, the best evidence of the parties’ intent is a provision in a written lease specifically stating who owns the improvement and what is to happen to it at the end of the lease. Tenants who make improvements without such language risk losing ownership and control of those improvements.
