Paragraph 2 of One to Four Family Residential Contract Explained

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Paragraph 2 (Property) is a very important section to understand in TREC’s One to Four Family Residential Contract.

Paragraph 2 pertains to the legal description of the property being conveyed and the improvements, accessories, and exclusions.

  1. PROPERTY: The land, improvements and accessories are collectively referred to as the “Property”. A. LAND: Lot______ Block _______, Addition_____, City of_________ , County of_______ , Texas, known________________ as (address/zip code), or as described on attached exhibit.

What is “Property”?

Paragraph 2 of the contract describes what “Property” description, lot, and block (mostly urban areas) and/or metes and bounds (mostly rural) and what the seller is willing to convey to the buyer. The contract states the seller is conveying “the land, improvements, and accessories.” Which could be surface right, air rights, sub-surface rights, timber rights, water rights, and mineral rights. Remember all or part of these rights may be reserved or transferred (lateral severance).

Paragraph 2B, Improvements

B: IMPROVEMENTS: The house, garage, and all other fixtures and improvements attached to the above-described real property, including without limitation, the following permanently installed and built-in items, if any: all equipment and appliances, valances, screens, shutters, awnings, wall-to-wall carpeting, mirrors, ceiling fans, attic fans, mailboxes, television antennas, mounts and brackets for televisions and speakers, heating and air-conditioning units, security and fire detection equipment, wiring, plumbing, lighting fixtures, chandeliers, water softener system, kitchen equipment, garage door openers, cleaning equipment, shrubbery, landscaping, outdoor cooking equipment, and all other property owned by Seller and attached to the above described real property.

Improvements (part of) include the house and all other “fixtures” (attachments) to the real property. The contract addresses several items as “improvements”. To automatically convey to the buyer the items must be “permanently installed and built-in”.

What is permanently installed and built-in?

Unfortunately, determining what is considered “permanently installed and built-in” is not that easy. In some cases, this is determined on a case-by-case basis. There is no “rule of thumb” theory that is set forth. For example, the home security alarm is always considered built-in. Other items may include built-in features such as benches, wood-paneled library features, or similar built-in furniture. If in doubt, ask your agent.

What is a fixture?

A fixture is an item that was once personal property (microwave, built-in espresso bar, or outdoor bbq that has been built into a stone feature), however, it has been attached in a certain way to make it real property. Refrigerators are typically not deemed a fixture, however, if it is a part of a custom kitchen, then it has likely become a fixture, and therefore remains with the Property.

As mentioned in the paragraph above, determining a fixture isn’t always that easy. To help resolve this issue, Texas courts look at three factors:

  • Attachment/annexation: Was the item attached (screws) to the property and if removed may cause damage.
  • Adaptation: Does the item adapt to the property. (customization, built-in)?
  • Agreement: Was the item in a written agreement e.g. contract.
  • The parties to the contract should discuss any items in question before signing the contract. This could avoid any misunderstandings as to what items will be retained by the seller or convey upon the sale.

Paragraph 2C, Accessories

C: ACCESSORIES: The following described related accessories if any: window air conditioning units, stove, fireplace screens, curtains and rods, blinds, window shades, draperies and rods, door keys, mailbox keys, above ground pool, swimming pool equipment, and maintenance accessories, artificial fireplace logs, and controls for (i) garage doors, (ii) entry gates, and (iii) other improvements and accessories.

Accessories do not have to be permanently installed; all items listed under Accessories are conveyed to the buyer unless excluded.

Paragraph 2D, Exclusions

D: EXCLUSIONS: The following improvements and accessories will be retained by Seller and must be removed prior to delivery of possession:________________________________________________

If a seller wants to retain any real property item, such as a fixture, the item must be excluded, otherwise, it will convey to the buyer as part of the property. Although the item may be listed in exclusions this does not avoid negotiations. Furthermore, exclusions only pertain to Improvements and built-in items, not rights.

Note: If a seller agrees to convey personal property(chattel), i.e. refrigerator. It must be included in the contract to make it binding on the seller. This can be accomplished by using the Non-Realty Items Addendum to Contract (TAR 1924, TREC OP-M).

Paragraph 2E, RESERVATIONS

E: RESERVATIONS: Any reservation for oil, gas, or other minerals, water, timber, or other interests is made by an attached addendum.

If a seller desires to reserve their oil, gas, minerals, water, timber, or other interests this paragraph was added to inform the parties to use a separately attached addendum. There has been some confusion as to exclude and reserve.

The word exclusion is derived from the Latin word “excludere”, which means to shut out. When the seller excludes an item i.e. chandelier, they are blocking or making it unavailable within the transaction.

The word reservation is derived from the Latin word “reservare”, which means keep back. This is different than excludes. When the seller wants to reserve the mineral, timber, or water rights they desire to keep back or withhold and may return to collect or exercise certain rights at a later date. The mineral rights addendum addresses the percentage the seller is willing to convey and the ingress (enter) and egress (exit) of the surface rights. Only a landman or attorney should be used to determine the ownership of any mineral rights to the property.

This is intended for reference only, and should not be considered a substitute for legal or title underwriter advice that is based on specific facts of a transaction.

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