The FF&E scope identification problem?
A land-owners vision for a specific built environment (building) includes its intended use. When designing for that use, it is imperative the designer demonstrate how furniture, fixtures and equipment, (building operational equipment), fit into the building to demonstrate the functionality of the proposed design is complaint with the owner’s vision. Often there are multiple configurations to explore to ensure any flexibility of design requirement is achieved. Usually, it is not intended the builder provide major production equipment / machinery, the chairs, tables, artwork, etc. Yet often, FF&E scope remains on the documents used to define the scope of a proposed building works contract.
Do you tag out supply and installation of ALL FF&E? Or do you tag out of only what is not shown in the specifications and drawings? And when you do tag your tender relating to FF&E status, what is FF&E vs what is "part of the building" required as part of your building contract? i.e. joinery fittings, metalwork, plumbing fixtures and fittings, electrical fittings, etc?
This problem is commonly recognised but not yet the subject of industry accord, as to the definition of FF&E that aids contractual interpretation of scope requirements.
Stumped, identifying what is Furniture, Fixtures and Equipment?
RESEARCH FINDINGS
Designing Buildings Wiki – an informal source for key word definitions
Furniture fixtures and equipment FF&E - fixed and loose furniture, fittings and equipment. [NZBE Link]
Equipment – (equipment installed in buildings) could be with or without requirements for fixing or services. It is important to identify equipment that will be provided within the main contract and equipment which, whilst it may be provided outside of the main contract (because the client may already have the equipment, or they may have existing suppliers) might have an impact on the main contract (perhaps needing to be accommodated in a certain location, or requiring fixing, power supply, air supply, water, drainage, telecommunications connection, etc.). [NZBE Link]
Fittings - Unlike the terms ‘fixtures’ and ‘chattels’, the word 'fittings' does not have a legally defined status or meaning. [NZBE Link]
Fixtures in buildings - an asset that is installed or otherwise fixed in or to a building or land so as to become part of that building or land in law. “…a chattel may become a fixture if it is fixed to a building or land. For example, before it is installed in a building as part of a central heating system, a central heating radiator is a chattel. Once installed, it becomes a fixture.” [NZBE Link]
Furniture - moveable objects that are used to support human activities in the built environment. Also be used more widely to refer to fitted objects and equipment. [NZBE Link]
Chattels - a chattel, which is, ‘…an asset, which is tangible and moveable’ (such as furniture). For example, a bath may be a fixture, but a fridge a chattel. [NZBE Link]
There are two key tests for identifying whether something is a fixture or a chattel:
The degree of physical affixation. This is not a conclusive test, but generally, the greater the degree of affixation (i.e. the damage that would be caused by removal), the more likely it is that an object is a fixture. The easier it is to remove, the more likely it is to be a chattel. More conclusively, if the object is intended to be permanent and effect a lasting improvement to the property, it is a fixture. However, if any attachment is intended to be temporary and no more than is necessary for the object to be used and enjoyed, then it is a chattel. [NZBE Link]
The only problem with the above definitions and our common understanding of the word “Chattel”, is it’s true meaning is technically more complex than the commonly understood “loose or easily movable personal property”, it can be “real property” when fixed. This is important because Fixtures are part of FF&E but the class of fixtures that are and are not FF&E pivot around their pre-fixed status as Chattels.
For me one UK website reference is not enough to firmly establish a NZ definition of FF&E. Surely there is a legal dictionary to explain what FF&E means? I asked a reputable NZ lawyer and the answer, after they looked is, apparently not.
New Zealand Regulations and Standards
The Building Act, “building – means a temporary or permanent movable or immovable structure (including a structure intended for occupancy by people, animals, machinery, or chattels.
[Ref: Building Act 2004 reprinted 1 December 2017 section 8 (1) (a) page 44.]
Building Regulations 1992 (NZBC). building has the meaning ascribed to it by section 3 of the Act as follows:
meaning of building — (1) In this Act, unless the context otherwise requires, the term “building” means any temporary or permanent movable or immovable structure (including any structure intended for occupation by people, animals, machinery, or chattels); and includes any mechanical, electrical, or other systems, and any utility systems, attached to and forming part of the structure whose proper operation is necessary for compliance with the building code; but does not include:
[abbreviated to] network utility systems, cranes, stand-alone machinery systems, vessels, vehicles, aircraft, hazardous containers, explosive magazines, scaffolding, false-work.
[Ref: Building Regulations 1992. Schedule 1 The Building Code s.A2 Interpretation, Building page 10.]
NZCIC 2016. Defines Project Budget as inclusive of land costs, construction costs, FF&E. consultants’ fees, development costs, contingency allowances, funding costs, Consent cost, etc.
Standards NZ. Glossary of Building Terms.
Fitting – (1) a component of a pipe system such as bends, elbows, tees, valves. (2) Joinery or cabinetry, generally factory made and fitted on site.
Fixture – An article intended to remain permanent attached to and form part of a building. (NZBC)
Furniture, door, window – in general, the various necessary fittings for completion, such as hinges, locks and handles.
[Ref: Standards NZ. MP 4212:1998 Glossary of Building Terms. Fitting p75, Fixture p75, Furniture, door, window p82;]
PINZ Valuers references
For valuation purposes, distinguishing between Fixtures and non-fixtures/chattels can be contentious.
Examples of Fixtures are (abridged for space and clarity);
(a) electric wiring to lighting points and power sockets, lighting systems, etc.
(b) fire and smoke detector, fire alarm and other hazard warning systems;
(c) heating, ventilating, lifts, escalators, water and effluent systems for people, etc.
Examples of non-fixtures (chattels) are;
(a) electrical power distribution associated with plant and equipment;
(b) lifting equipment associated with plant and equipment;
(c) effluent treatment plants associated with trade waste;
(d) telephone installations and computer cabling.
[Ref: The Property Institute of New Zealand (Valuers). ANZVGN 1 Valuation Procedures – Real Property, pages 8.1.1 & 8.1.2]
Chattels are not normally included in a valuation of real property. Chattels are regarded as personal property. Window coverings are considered chattels.
[Ref: The Property Institute of New Zealand (Valuers). ANZVGN 2 Valuations for Mortgage and Loan Security Purposes, Section 5 Chattels, page 5]
IRD Regulations
Buildings attract 0% depreciation. Chattels and fit-out of a building, where it does not form part of the building, can still be depreciated. Commercial fit-out means an item to the extent to which it is plant attached to a commercial building and non-structural and not weather proofing in relating to the building.
[Ref: IRD IR265 July 2018 General Depreciation Rates, page 2, 3, 22, 38.]
[Ref: Income Tax Act 2007 Part Y s YA 1 page 2757, page 2865. The meaning of plant does not include an item that is structural in relation to a building, page 2757. Commercial building means a building that is not, in part or in whole, a dwelling, unless use as a dwelling is a secondary and minor use.]
IRD Interpretation Statement 10/01 “sets out a three step process that [IRD] apply to determine whether an item can be separated out or whether it’s regarded as being part of the building. You can find this in [IRD] Tax information Bulletin Vol 22, No 4 May 2010” The three step test is;
Step 1: Determine whether the item is in some way attached or connected to the building. If the item is attached to the building, go to step 2.
Step 2: Determine if the item is an integral part of the property such that the property would be considered incomplete or unable to function without the item. If the item is an integral part of the property, then the item will be part of the building. If the item is not an integral part of the property, go to step 3.
Step 3: Determine whether the item is built-in or attached or connected to the building in such a way that it is a part of the “fabric” of the building. Consider factors such as the nature and degree of attachment, the difficulty involved in the item’s removal, and whether there would be any significant damage to the item or the building if the item were removed. If the item is part of the fabric of the building, then it is part of the building for depreciation purposes.”
[Ref: IR260 January 2019 Depreciation – a guide for business. Page 12.]
[Ref: IRD Tax information Bulletin Vol 22, No 4 May 2010. Conclusions 178 on page 43 & 44]
“While the statement(s) (above) only applies to residential buildings, many of the principals are also likely to apply to commercial and industrial buildings.” “Generally, non-residential fit-out is also less permanent than residential fit-out because of tenant-specific requirements and changes of use.”
[Ref: IRD Tax information Bulletin Vol 23, No 1 February 2011. Page 66]
Measurement Standards
NZS4202:1995 Standard Method of Measurement. Trade based building works, no provision for FF&E. A document focused on items ordinarily used in construction of buildings for quantifying the scope of work for a construction contract.
ANZSMM 1st Ed. 2018. NZ adopted with some agreed modifications to the Australian Standard Method of Measurement. In Section 31 Furniture, Fittings & Equipment includes an extensive list of FF&E groups and items. But this list is not exhaustive or exclusively definitive. There are cross overs with some trade elements where a definition of FF&E is needed to determine what is a trade supply item and what is FF&E section item. But this is an excellent aid to the definition of what is FF&E. Note the preceding Australian SMM is identical to ANZSMM 1st Ed. 2018 in respect of FF&E.
NZIQS Elemental Analysis.
(a) E15 Fittings and fixtures definition “Built-in joinery fittings fixed in position;
(b) E24 Sundries Definition “Items which do not readily lend themselves to inclusion in other standard elements due to their singular character.” Some FF&E items noted in ANZSMM 1 are noted for measuring here;
(c) E28 Other Development Costs defined as “Items included in a capital cost estimate that are not included in the construction contract scope of work and to be supplied or provided by parties other than the construction contractor. E28.03 Loose furniture and equipment; Note this Section E28 is a completely new addition to the NZIQS Elemental Analysis with the 5th edition dated January 2017;
UK NRM2 2013 and SMM7 1988. Requires Fixtures, Fittings or Equipment to be scheduled separately (1) without services or (2) with services. NRM2 2013 FF&E at Level 2 requires description of ancillary items including integrated or remote control to be included in the item description. This highlights that FF&E items are defined irrespective of them having integrated or remote controls.
[Ref: NRM2 2013 page 226]
Summary of Regulations and Standards
Design and measurement industry practices inform us of some commonly identified FF&E classifications. Sometimes these are fixed to the building or are remotely controlled or integrated with building services, while still considered Chattels and not fixtures if they are removable without damage to either chattel or building. They are tax deductible, because they are not “part of the building” as defined by tax law or the Building Code / Building Act. Building owners accountants and lawyers will be dutifully identifying all such depreciable assets. One test to determining if a part of a building is FF&E is asking if it qualifies for depreciation or not. But this is not the sole test to determine if part of a building is FF&E.
Is part of the building fit-out FF&E?
DEFINITION
A Proposed Definition of FF&E for New Zealand Building Contracts
FF&E is an off-site manufactured Chattel installed within a building either loose or fixed temporarily to the extent that it is removable without damage to the Chattel or the building, or fixed permanently making it a fixture, with or without services connected to it, that is operationally necessary for the intended occupation of the building but is not necessary for compliance with the building code.
FF&E described more precisely, is Building Operational Equipment.
[Ref: “Chattel” is the name given to things which in law are deemed personal property. Chattels are divided into chattels real and chattels personal. Chattels real are interests less than freehold in land which formally devolved in the same way as personal estate, for example, leaseholds. Chattels personal are movables. From Butterworths New Zealand Law Dictionary (6th ed. Lexis Nexis NZ, Wellington, 2005) as cited in IRD Tax Information Bulletin Vol 22 No4 May 2010, page 28]
[Ref: “building” means any structure (including any structure intended for occupation by people, animals, machinery, or chattels); and includes any utility systems, attached to and forming part of the structure whose proper operation is necessary for compliance with the building code. From Building Regulations 1992. Schedule 1 The Building Code s.A2 Interpretation, Building page 10]
What The "F" Means?
FF&E is commonly short for Furniture, Fixtures and Equipment. Sometimes one of the F’s are used to refer to "Fittings" or "Furnishings". "Equipment" is always the 'E" part of the FF&E description and the natural meaning of "Equipment" (of the kind installed in buildings), is broad enough to cover loose or fixed Furniture, Fixtures, Fittings and Furnishings. So it probably does not matter what the "F" means when you use the term FF&E, as "Equipment" captures all the meanings.
Summary List of Building FF&E Status Groups for Building Components
Distinct Groups of Items installed in a building, in descending hierarchy order, from not FF&E to always FF&E;
1. Building. A item that is an integral part of a building, a code compliance essential - is Not a Chattel and is NOT FF&E;
2. Building Fitout Structure. A item that is on-site manufactured, permanently fixed fitout part of a building – is a Chattel Real (building fitout structure) and NOT FF&E;
3. Building Fitout Fixture. A item that is off-site manufactured, permanently fixed fitout part of a building – is a Chattel Real (A building fitout fixture) and FF&E;
4. Fitted Equipment. A item that is off-site manufactured, temporarily fixed fitout part of a building – is a Chattel Personal (fitting or fitted equipment) and FF&E;
5. Loose Equipment. A item that is off-site manufactured and loosely installed in a building –is a Chattel Personal and FF&E;
Only some building items are Chattels and only some Building Chattels are FF&E as noted above.
[Ref: “fit-out” (Commercial Building) means an item to the extent to which it is plant attached to a commercial building and is non-structural and not weather proofing in relating to the building. From Income Tax Act 2007 Part Y s YA 1 page 2757.]
[Ref: “fitting”, Standards NZ. MP 4212:1998 Glossary of Building Terms. “generally factory made and fitted on site” page 75]
[Ref: “equipment”, a non-fixture, generally excluded from a “real property” valuation. From ANZVGN 1 (ANZ Valuation Guidance Note 1) Valuation Procedures - Real Property, item 3.4 Examples of non-fixtures, page 2s]
[Ref: “fixture”, Standards NZ. MP 4212:1998 Glossary of Building Terms. “an article intended to remain permanently attached to and form part of a building, page 75.”]
[Ref: "Fixtures" in buildings - an asset that is installed or otherwise fixed in or to a building or land so as to become part of that building or land in law. “…a chattel may become a fixture if it is fixed to a building or land. For example, before it is installed in a building as part of a central heating system, a central heating radiator is a chattel. Once installed, it becomes a fixture.” Designing Buildings Wiki website]
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By Matthew Ensoll
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Editor New Zealand Building Economist.