Buying or Selling? What about those fixtures?

Part of your solicitors' role in a conveyancing transaction is to try and minimise avoidable disputes arising in your sale or purchase of real estate property.

An area that has a high potential for dispute, and usually the most easily avoidable, concerns what is included or not included in the sale of a property.

The law defines that land also includes its "fixtures". So when selling your house, fixtures are automatically included.

Fixtures are "attached" to the land. Easily identifiable fixtures include, for example, any permanent buildings and improvements built onto the land. They also include things (or "chattels") permanently or securely attached to the land or to the building.

How "permanent" or "secure" is "permanent" or "secure"? Well, that's one area where disputes can arise. If a thing is attached so that it's hard to remove without causing damage, then it's most likely a fixture.

So, if your dishwasher is only 6 weeks old, but you've decided to sell the house. Is the dishwasher included? Well, it depends. If it's freestanding and its only connection is one power cord plugged into a standard power-point, a water supply hose and a waste water hose, arguably it's not a fixture and you can take it.

On the other hand if it's custom built into the kitchen's furniture and decor, and it's likely to cause some damage if it's removed, then it's probably a fixture and you can't take it.

You've sold the property, settlement morning arrives, and after completing their final inspection, the buyer complains to his solicitor about the missing dishwasher (or dryer, or whatever...). You always intended to take the dishwasher, and the buyer always assumed it was included; after all, it was part of the kitchen's attractions.

What happens now? Well, if it's a fixture, the contract usually provides that the seller has to either return it, or compensate the buyer. This can be very annoying if it means forking out another $1,200.00 the seller wasn't counting on. It's hardly worth jeopardising a $600,000.00 sale over a $1,200.00 dispute. On the other hand, if it isn't a fixture, the buyer is very annoyed to for the same reasons. Either way, it leaves a very sour taste.

How can this be avoided? Especially if a chattel could be either a fixture or not.

Simplest answer: make sure the sale contract actually states what is included or not included in the sale.

If you're selling, to be on the safe side and avoid a later hostile argument about inclusions, ask your solicitor to ensure that the contract makes it plainly clear that the dishwasher (or dryer, air-conditioner, the custom aviary, the wedding present bird-bath, mum's special curtains, sentimental light fitting, or whatever) is excluded from the sale.

If you're the buyer, don't assume all what you see is included in a property sale. If you have time, consult your lawyer to discuss your concern. Better still, if you're in a situation where you need to sign a contract right there, insist or negotiate that the particular item or chattel you want is written in the contract as an inclusion (usually on page 1 of the NSW standard contract).

Another way of saying this, is that regardless of whether a thing is a chattel or a fixture, the contract can simply state whether they're included in the sale or not, and that simply does away with any dispute about definitions.

The issue concerning chattels and fixtures applies to other land and property transactions too, such commercial & retail leases and sales. Indeed, an issue that appears to come up regularly concerns racking or shelving; often these are specialised and expensive - but they too have fallen into the debate of whether they're chattels or fixtures.

To avoid an avoidable dispute, maintain harmony, reduce unnecessary stress and angst, and help to make your sale or purchase a more pleasant experience, ask your solicitor to ensure the contract deals with these types of issues.

Sellers and Their Agents

Once a decision is made to sell real estate property, in my experience I find that almost all my seller clients have already consulted and signed up with their preferred real estate agent.

There are still occasions however where I'm asked by clients to review or explain their agency agreement before they sign up.

In these cases, over the years, apart from explaining the nature and effect of what are usually "exclusive" agency agreements, I've found that the advice I consistently emphasise includes asking my clients to consider:

• The exclusive agency period. It can be varied!
  
• The commission rate. Its usually negotiable.
• Make sure that the seller is a aware of ALL the potential costs
• Will the agent provide an "early release" guarantee?

More on these points below.

Exclusive agency period. In my view these should never exceed 90 days, but ideally ought to be no more than 60 days. I've been told by clients many times that when they've tried to reduce this period, the agent often protests that they need a decent time-frame to enable their marketing to work. Fair point, but I've also been advised by real estate agents that 60 days, even 30 days in some cases, is more than adequate to not only mount an effective campaign, but also to demonstrate to a seller the agent's genuine commitment.

Under an exclusive agency agreement, a seller is tied to their agent for at least that agency period. This means the seller can't really sack that agent in that time. Generally, that agent is entitled to commission if the property is sold during the agency period, regardless of whether the agent introduced the eventual buyer. If a seller is unhappy with that agent and attempts to "sack" that first agent and appoints another agent, the seller is under a serious risk of having to pay a full commission to two agents!

A shorter agency period gives a seller some flexibility. If they're unhappy with the agent's performance, at least it's a shorter wait to the end of the agency period after which another agent can be considered.

On the other hand, no matter what the length of the agency period, there's nothing stopping a seller entering a new agreement or agency period if they're happy with their agent's performance.

The commission rate - it's actually negotiable! I've commented on this previously. Speak to a number of agents before deciding who to engage. If anything, at least a seller can compare commission rates as well as other factors.

Check for other charges not so prominently disclosed. Make sure that the seller is a aware of ALL the potential costs. As well as commission, to determine whether it's inclusive of GST, and if other charges are additional, such as advertising costs. I've found most agency agreements don't include additional advertising costs but some do; it's something to factor in when making an informed decision.

Is an early release guarantee available? There are agents who subscribe to the Jenman system. One of its features is that no matter how long the agency agreement period, the seller has the right to cancel the agency agreement at any time.

A client of mine recently cancelled a 90 day agency agreement only days after making that agreement. Due to an inadvertent, and what would normally be considered a relatively very minor, error by one the agent's staff, the seller cancelled his agency agreement. The agent rectified the concern immediately, apologised of course, and asked the seller to take at least a day to reconsider. The next day, the seller confirmed his decision. To the agent's credit, the agent in this case honoured his guarantee and released the seller from the agreement, and lost an opportunity to earn quite a handsome commission. Ouch! That must've hurt! But full credit that agent - I'd suggest very few agents in that position would've agreed to such a release.

So, another consideration I'll now be consciously drawing to my clients' attention to if I'm asked to advise on agency agreements, is that they take into account whether a potential agent will provide a similar guarantee.