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Intent Remains King in Indiana’s Fixture Analysis

 

By:  Keenan C. Fennimore, Associate

 

A majority of jurisdictions, including Indiana, employ a three-part test in determining whether a particular article of personal property has become a “fixture” to the real estate to which it is attached. This test examines: (1) the actual or constructive annexation of the article to the realty; (2) the article’s adaptation to the use or purpose of that part of the realty to which it is connected; and (3) the intention of the party making the annexation to make the article a permanent accession to the realty. As recently emphasized by the Indiana Court of Appeals in 11438 Highway 50, LLC v. Luttrell, 81 N.E.3d 261 (Ind. Ct. App. 2017), the third part of the test is controlling and must affirmatively appear. Id. at 265. If there is any doubt whether the annexor intended the article to become a fixture, the property should be regarded as personal. Id.

 

In Luttrell, a two-member stone sawing partnership, J&D Sawing, purchased and installed a fifty-ton industrial crane and a fourteen-by-seven foot hydraulic saw on a portion of real estate owned by a quarrying corporation, Indiana Stone Works, Inc. (“ISW”). The crane and saw were assembled in a building constructed by ISW specifically to accommodate the equipment and were tied into the building’s electricity and water lines. Both the crane and saw were situated on rails bolted to the floor, and the equipment was operated in tandem to hoist into place and cut blocks of limestone. Although each could be transferred by semi-tractor to a new location, the saw required two days to disassemble, and the crane required a second, 100-ton crane in order to be removed from its rails.

 

Unfortunately for J&D Sawing, its business never took off, and one of its partners, Timothy Luttrell (“Luttrell”), eventually petitioned to dissolve the partnership. During the dissolution proceedings, Luttrell moved for possession of the crane and saw. A mortgage lender of ISW (the “Lender”) intervened and asserted a lien against the equipment as fixtures of ISW’s real estate. The Lender argued that, given their size, the building in which they were housed, and the manner in which they were attached thereto, any objective observer would conclude the crane and saw to be permanent, integral fixtures to the building’s stone fabricating operation. Both the trial court and Court of Appeals disagreed. Id.at 267.

 

In affirming the trial court’s determination that the crane and saw should be regarded as personal property of J&D Sawing, rather than fixtures subject to the Lender’s mortgage lien, the Court of Appeals noted the following:

 

          Luttrell stated that J&D Sawing was a completely independent business from ISW; ISW had its own equipment and its operations in no way depended upon J&D Sawing’s equipment. Although this particular building would be empty upon removal of the crane and the saw, the building would suffer no damage from the equipment’s removal, and ISW’s operations would not be disturbed. Moreover, according to Luttrell, the parties apparently intended to maintain the equipment as J&D Sawing’s personal property until such a time that the partnership could purchase the building and real property from ISW.

 

Id. at 266-67. According to the Court of Appeals, these circumstances were sufficient to support the trial court’s holding that J&D Sawing did not intend for the crane and saw to become fixtures of or permanent accessions to the ISW realty. Id. at 266.

 

To be clear, Luttrell did not break new ground in the area of fixture law. However, it serves as a reminder that the intent prong of the three-part fixture test is the most important, and under Indiana law, it includes a de facto presumption of personalty. Those arguing that property has become a fixture based solely on the test’s annexation and adaptation prongs are unlikely to overcome this presumption.

DISCLAIMER: These materials are intended for general informational purposes only.

Accordingly, they should not be construed as legal advice or legal opinion on any specific facts

or circumstances. Instead, you are urged to consult counsel on any specific legal questions you

may have concerning your situation.