"A Good Property Description Benefits Buyers and Sellers," Maslon Whitepaper, February 2004
February 24, 2004
One of the fundamental elements in any real estate transaction - residential or commercial - is properly and fully describing the property that is to be sold or leased. Typically the parties have a basic understanding of the property in the transaction (e.g., the building at 123 Main Street). However significant misunderstandings can arise regarding the description of the property in the transaction, typically a parcel of land, as well as confusion about whether other items of real and personal property are included or excluded from the transaction. As a result, it is important to focus early in the transaction on accurately identifying and describing all of the items of property to be sold or leased, to avoid problems as the transaction progresses.
As an initial matter, any purchase agreement or lease should include a general description of the size and location of the property (e.g., 2 acres, with a 20,000 square foot office building, located at 123 Main Street) as well as a more precise legal description of the property. Since many people are not adept at reading metes and bounds legal descriptions or may lack access to plats referenced in legal descriptions, having the general description of the property in the agreement provides protection for both parties if the legal description is inaccurate or includes more or less property than the parties intended. Similarly, if the purchase price or rent is to be determined based on the size of the property, the agreement should state the purchase price or rent in objective terms and specify the rate per square foot. By specifying the rate, the price or rent can be adjusted appropriately once the actual size of the property is confirmed.
It is also important to identify other real property and personal property included in the transaction. As a general rule, the sale or lease of land will be deemed to include any "fixtures" located on the land. The term "fixtures" refers to items of personal property, often attached in some manner to the land, that are so related to a specific piece of real property that they are considered part of the real property. Unfortunately, the line between fixtures and personal property is fuzzy and the definition of fixtures includes significant exceptions. Thus, listing items in the agreement helps avoid confusion and disputes.
In addition, there may be other items that are not fixtures that the parties want to include in the transaction. For example, in a commercial purchase agreement the buyer will often also want to acquire the seller's interest in service equipment, maintenance contracts, warranties, permits, project records and intellectual property related to the property, such as the name or logo for a project. In the residential context, the focus is usually on what items of personal property are included in the transaction. It is important for the buyer to specify in the purchase offer any items of personal property that it wants included (e.g., boat docks/lifts, pool maintenance equipment and chemicals, specific appliances or furniture). Most form residential purchase agreements include blanks in which to list the personal property included in the transaction, although buyers often overlook the importance of specifying those items.
Conversely, a seller may want to specifically exclude certain items from the transaction that it intends to retain in order to avoid claims from the buyer that the item was a fixture included with the real property. Sellers may also want to specifically include certain personal property in a transaction to avoid the costs of removal or continued ownership.
In the end, all parties to a real estate transaction benefit when the property is fully and properly described in the agreement. Focusing on this issue from the start can save resources and potential disappointment later.