Federal law classifies all property as either real property or personal property. Real Property is defined as the physical land and everything attached to it, plus the rights of ownership (bundle of rights) in real estate. Real property is also called realty. Personal property is defined as tangible items not permanently attached to, or part of, the real estate. Personal property is also called chattel.
People tend to think of the land itself when they hear the term “real property”. The term refers to much more than rocks and dirt, however. It also encompasses items attached to the land (attachments or improvements), rights that go with ownership of the land (appurtenances), and limitations on the use of land (public and private restrictions). These are important because homeowners must be aware of issues and distinctions that may impact value for property they are considering as collateral for a loan.
The distinction between real property and personal property becomes important whenever the ownership or possession of land is transferred. Unless otherwise agreed, the law says that all of the real property is included in the transfer, but personal property that happens to be on the land is not included. Because of this legal doctrine, buyers and sellers, landlord and tenants, owners and foreclosing lenders often disagree about whether something is real property or personal property. Determining what type of property certain items are can sometimes lead to serious disputes and court battles.
For example, a built-in dishwasher would be considered part of the house but a refrigerator would most likely be considered a personal items and therefore not included in the sale. Built-in bookcases are considered real property but a sofa is personal property. An in-ground pool is real property, but an above ground pool is not. Lenders must be aware of this because the presence or absence of built-in items might affect the value of the property, but personal items should not influence value.
One less clear-cut example to contemplate is carpeting. Wall-to-wall carpeting would be considered real property, unless there are hardwood floors underneath. The idea behind that is that removing carpet and leaving hardwood floors does not diminish the value of the property, whereas leaving unfinished sub-flooring would. Often, disputes arise over things like storage sheds, satellite dishes, and chandeliers. Potential buyers and sellers of real estate should always discuss these things openly with their real estate agents and have issues resolved clearly before settlement to avoid potential problems and disputes. When necessary, property that will be staying in the house and used by a new buyer should be specifically stated as such in the purchase agreemen
This commercial insurance business personal property coverage along with the building property coverage, business income coverage, and extra expense coverage is usually written on the commercial property policy. This can be written on a stand-alone commercial property policy or it can be folded into a commercial package policy. Usually a package policy has two or more different lines of business coverages. The most common lines of business coverage are the general liability and property insurance combine together to make a package policy.
Business personal property is almost always covered within your insured building or outside the building on the premises but usually within 1,000 feet of the primary insured location. You do not necessarily have to own your business personal property. There’re many different categories of this type of property. Your property could be 100% financed by a bank and while they are the legal owner you still can provide business property insurance coverage. Many times businesses lease their business contents. Most common types of leased business personal property are the copy machine, the phone system or many different types of office equipment. In this era of the virtual office you could conceivably lease everything within your space. When you have a loan on your contents or the property you lease you will have to name the lessor and/or the bank as a loss payee on your property and provide the appropriate evidence of property insurance coverage.
Most businesses from time to time have personal property of others in their care custody or control. These items could be stored at their desk or work area or in a specific locker room storage location within the premises. You may or may not have any responsibility to provide reimbursement if employees personal property becomes damaged or stolen. Providing coverage for property of others will help alleviate that risk exposure. Property of others could also extend to your clients and customers if you are in a particular business that provides services for other people’s contents. Maybe you are providing repair or maintenance on their contents. While the client should have their own insurance protection for their personal property a business owner can sometimes be legally liable for the property that is within your care custody or control. This coverage can be afforded under the business personal property portion of the commercial property policy.
Usually in manufacturing businesses or distribution businesses the business personal property can transform into many different forms and shapes and locales. Business personal property which is of the inventory nature can increase in value from raw materials all the way through to the finished product. Having built-in protection for inventory fluxes as they increase from a work in progress standpoint can help prevent gaps in coverage and losses. In further articles we will explore the final two coverages of business income and extra expense.