Florida’s Uniform Commercial Real Estate Receivership Act - A New Statutory Framework for Receiverships

Bilzin Sumberg
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Bilzin Sumberg

In March, the Florida Legislature passed CS/HB 873, approving the Uniform Commercial Real Estate Receivership Act (“UCRERA”).  First drafted in 2015 by the Uniform Law Commission, UCRERA has already been adopted by seven states: Arizona, Maryland, Michigan, Nevada, Oregon, Tennessee, and Utah.  If Governor DeSantis signs the bill, UCRERA will become effective July 1, 2020, and will be codified under Chapter 714 of the Florida Statutes. With the anticipated large volume of commercial foreclosures due to COVID-19 and expectations of resulting delays in the foreclosure process, this Act could have significant immediate effects. It would likely provide relief that commercial lenders and other parties have sought to protect their interests in real property, as well as incidental personal property related to or used in operating the real property.

Florida law has long recognized commercial receiverships as a remedy available to stakeholders of those types. However, this area of law has lacked uniformity. UCRERA largely codifies existing Florida common law and provides that uniformity.

UCRERA defines a “receiver” as a person appointed by a court to take possession of the property of another and to receive, collect, care for, and dispose of the property or the fruits of the property. In other words, the receiver takes the place of the owner as to the operation of that property. The Act generally applies to receiverships for interests in commercial real estate and associated personal property.  It may apply to residential property, but only if it is improved by more than four dwelling units or meets certain other conditions.

UCRERA does not create an independent cause of action. A receivership is only available when a party brings an underlying action relating to commercial property, such as a foreclosure proceeding. Whether a receiver is appointed would remain in the court’s discretion.

Generally, lenders seek receivership when a provision in the loan documents calls for such appointment and/or there are exigent or emergency circumstances, such as a failure to maintain the premises or turnover rents.

In addition to these grounds, UCRERA allows the court to appoint a receiver if the property is about to be the subject of a voidable transaction. During post-judgment proceedings, a court may appoint a receiver to enforce the judgment, protect property during the pendency of an appeal, or secure a property’s rents to the person entitled to them after a foreclosure sale.

Under the Act, a receivership proceeding may proceed with or without notice. In order to proceed without notice to the adverse party, the moving party must certify in writing that he or she made all reasonable efforts to provide notice to the adverse party or the reasons why notice should not be required.

After notice or certification of non-notice, the court must conduct a hearing, unless the party seeking the receivership shows by specific facts in an affidavit or verified pleading that “immediate and irreparable injury, loss, or damage, will result to the movant or that waste, dissipation, impairment, or substantial diminution in value will result to the subject real estate before any adverse party can be heard in opposition.”

Consistent with common law, the court appointing a receiver would have exclusive jurisdiction to direct the receiver and determine any controversy related to the receivership or receivership property.

Under current practice, a court order delineates the duties and powers of the receiver on a case-by-case basis.  UCRERA would now provide statutory authority for a wide range of powers.  These include the powers to control and manage receivership property, operate a business constituting receivership property, incur and pay debts and expenses, and assert claims or causes of action relating to the receivership property. Furthermore, with court approval, a receiver may:

  • Incur debt for the use or benefit of receivership property other than in the ordinary course of business;
  • Improve receivership property;
  • Use or transfer receivership property other than in the ordinary course of business;
  • Adopt or reject an executory contract relating to the receivership property;
  • Pay compensation to the receiver pursuant and to each professional engaged by the receiver;
  • Recommend allowance or disallowance of a claim of a creditor; and
  • Make a distribution of receivership property.

UCRERA does allow the court to expand, modify, or limit the receiver’s powers and duties and therefore, these powers and duties, could vary among cases.

The owner’s duties are also set forth in UCRERA, which requires the owner to:

  • Assist and cooperate in the administration of the receiver’s duties;
  • Preserve and turnover all receivership property;
  • Identify and make available all records;
  • Submit to an examination under oath, if subpoenaed; and
  • Perform any other duty imposed by the court.

If the owner knowingly fails to perform his or her duties, UCRERA provides for sanctions.

Another key, and perhaps controversial, feature of UCRERA is that it authorizes a receiver to sell or transfer receivership property before a judgment is entered in a proceeding so long as there is court approval after notice to all parties, if either the owner consents in writing or fails to object either before or at the hearing on the receiver’s motion.

Consistent with common law, UCRERA requires a receiver to post a bond with the court conditioned on the faithful discharge of the receiver’s duties, unless the court approves the posting of an alternative security, such as a letter of credit or deposit of funds. The court has the discretion to determine the bond amount, but UCRERA does not provide guidance on what a minimum bond should be. UCRERA also limits claims against the bond to one year after the receiver has been discharged. Notably, the party requesting the receivership may also be subject to a bond. UCRERA allows a court to condition a receiver’s appointment on the posting of a bond or other security by the moving party for the payment of any damages suffered by a person, if the court later determines that the appointment was not justified.

Another unique requirement of UCRERA is that a prospective receiver must submit to the court a statement under penalty of perjury that the receiver is not for any reason disqualified from appointment. UCRERA defines the grounds constituting disqualification.

UCRERA also grants broad powers to the court to stay any proceedings that affect or concern receivership property and to enjoin anyone whose acts threaten to waste or misappropriate receivership property. It also empowers the court to require the person (including the owner of the commercial real estate) whose conduct justified the appointment of a receiver to pay for the reasonable fees and expenses of the receiver administering the commercial real property, which may include attorneys’ fees and costs.

In sum, UCRERA provides a framework for the appointment and administration of commercial real property receiverships, establishing a more predictable structure and set of processes in this area of law.  As the economic consequences of COVID-19 continue to be felt, with potentially profound and sustained effects on commercial real property, lenders can be expected to focus even more intently than usual on protecting their collateral. UCRERA may enhance their ability to do so.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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