Florida Enacts the Uniform Commercial Real Estate Receivership Act (“UCRERA”), Becoming the Ninth State to Adopt the Uniform Law

July 21, 2020

On July 1, 2020, after four years of extensive efforts from the legislature, business and legal sectors, Florida became the ninth state[1] to enact the “Uniform Commercial Real Estate Receivership Act” (“UCRERA”)[2], thereby implementing a standardized and robust legal process for the use of court appointed receivers in the commercial real estate market.  Florida’s enactment of UCRERA, much like Congress’ recent amendment of the Bankruptcy Code to establish Subchapter V, the Small Business Reorganization Act, could not have been more timely given the current economic and financial turbulence in the commercial real estate sector. 

 

Summary and Key Takeaways.  UCRERA provides a comprehensive set of rules for courts to apply in commercial real estate receiverships.  Prior to its enactment, Florida courts, practitioners or mortgagees had no consistent or comprehensive statutory or common law framework for maintaining receiverships.  Under UCRERA, however, the court’s appointment of a receiver effectively creates an involuntary bankruptcy and appointment of a de facto bankruptcy trustee who has the ability to manage, operate, sell and lease a commercial property, including its operating fixtures and adopt or reject executory contracts with court approval, among other court approved powers.  Significantly, the receiver may request the imposition of a stay order that enjoins third parties from interfering with the administration of the receivership property.  UCRERA also provides the receiver with contempt powers similar to those possessed by trustees that he may use against third parties who fail to turn over receivership property.  Similarly, the receiver has subpoena power through which she can compel examinations and written discovery from third persons.  If a receiver ultimately sells receivership property, he can do so free and clear of liens and encumbrances like in a bankruptcy s. 363 sale, with pre-receivership liens only attaching to the proceeds of the sale. Likewise, the receiver may seek retention of professionals such as attorneys, accountants, appraisers and brokers to assist her in carrying out her duties.  Additionally, as provided under Ch. 15 of the Bankruptcy Code, UCRERA also provides the receiver with “ancillary” powers that enable a receiver to be recognized in other jurisdictions where receivership property is located.  Notably, a court may order that the party requesting the appointment of the receiver pay the fees and expenses of the receivership where it does not produce sufficient revenue to pay those expenses and fees.

 

The specific features of UCRERA include the following (among others):

 

Receiver’s Broad Powers.  Under Fla. Stat.  § 714.01-714.28, UCRERA provides for the court appointment of a receiver that can take possession of, manage, transfer, lease, sell, collect rents on, or otherwise control commercial property that is the subject of a loan default and/or could or has fallen into disrepair.  Receivership property includes not only the subject real estate, but also “any incidental personal property related to or used in operating the real property,” e.g. furniture, fixtures, equipment and other business related personal property. Receivership property is defined to also include the proceeds, products, rents, off-spring and profits of the real property. The receiver is also, somewhat like a bankruptcy trustee, entitled to raise any defense available under state law if sued in his official capacity and can only be sued in his personal capacity with court approval.

 

Owner Occupied Small Dwellings Excluded. Note that while receivers can possess, manage and sell multifamily residential property, UCRERA section 714.04(2) specifically excludes from a receivership any “real property improved by one or two dwelling units which includes the homestead of an individual owner or an affiliate of an owner,” i.e. an owner occupied two family dwelling. Also excluded are: (i) properties that are exempt from forced sale or execution under Florida law, (ii) actions that are commenced under federal law, (iii) personal property that is primarily used for personal, family or household use.

 

Circumstances for Appointment. Section 714.06 provides that the Court may appoint a receiver prior to the entry of a judgment in order to protect an interested party if the property or its “revenue-producing potential”: (i) is or is in danger of waste, loss, diminution in value, dissipation or impairment; or (ii) has been or is about to be the subject of a voidable transaction, e.g. a fraudulent transfer.  A court may also appoint a receiver after a judgment enters in order to “carry the judgment into effect” or to secure property that would be subject to execution but for the pendency of an appeal or the acts of a recalcitrant property owner.  A party, ordinarily a mortgagee or other lienor, may also seek appointment during the pendency of  foreclosure or other mortgage enforcement, in order to protect the asset from waste, loss, diminution in value, dissipation or transfer or if rents are not being turned over by the mortgagor or owner or if the mortgagee is deemed unsecured given the value of the property and other collateral it holds.

 

Ex Parte Relief Authorized.  Section 714.03 specifically authorizes a court to appoint a receiver ex parte, i.e. without notice and hearing, where: (i) immediate, irreparable injury, loss or damage will result to the movant or (ii) waste, dissipation, impairment, or substantial diminution in value will result to the property before any adverse party can be heard in opposition to the receivership motion.  Ex parte requests must, however, be grounded on an affidavit or verified pleadings and must show by attorney certification that “all efforts” were made to notify “all known adverse parties” or the reason why notice “should not be required.”  Any ex parte order must recite specific findings regarding the irreparable injury and the reasons whey notice was not given.

 

Executory Contracts.  UCRERA section 714.17 provides for the adoption or rejection of executory contracts such as leases or purchase and sale agreements with court approval.  If adoption or rejection is not requested within a “reasonable” time after the receiver is appointed, however, the receiver is deemed to have rejected the contract.  Notably, where the owner’s landlord holds unexpired leases, a receiver may not reject that lease if the tenant “occupies the leased premises as the tenant’s primary residence” or under certain other circumstances depending on whether the mortgagee commenced the receivership.

 

Appointment of Professionals.  Like a bankruptcy trustee, under s. 714.15, a receiver is authorized to seek retention of professionals such as “an attorney, an accountant, an appraiser, an auctioneer, a broker or other professional” to assist him in performing and exercising his powers and duties, subject to meeting disclosure and disinterestedness requirements. Like a bankruptcy trustee, a receiver may also appoint herself as an attorney.

 

The Court Retains Jurisdiction.  A receiver may be appointed by the court of “general equity jurisdiction,” which is the Florida Circuit court system.  After issuing an appointment order, the court retains jurisdiction to direct the receiver, to appoint professionals upon the receivers request and to issue and enforce such other orders that are necessary for the receiver to carry out her powers.

 

Conclusion.  As enacted in Florida, UCRERA provides a scheme of comprehensive and robust powers to court appointed receivers that are available to petitioning mortgagees and other interested parties in order to protect their commercial real estate collateral from waste, diminution, rent loss and dissipation or other injury.  In the current turbulent economic and financial environment stemming from the impacts of COVID-19, which has particularly affected malls, hotels, restaurants and other commercial properties, the availability of a non-bankruptcy statutory receivership remedy is timely and valuable to Florida based lenders and investors.  Curran Antonelli, LLP has deep experience practicing in the areas of creditors rights, bankruptcy, real estate, and general state and federal law that enables our Firm to maximize the recovery of its clients in nonperforming and distressed situations.  Please contact us to discuss UCRERA and other remedies available to maximize your recovery.

 

Note that the Business Law Section of the Florida Bar Association is sponsoring a CLE, “Course 3922: Florida’s Commercial Real Estate Receivership Law Substantively Changes July 1, 2020, Are You Prepared?” on July 30. Featured panelists include U.S. Bankruptcy Court Judge Mindy Mora, of Florida’s Southern District, Second District Court of Appeal Judge Edward LaRose, Manuel Farach, and Kenneth Murena.[3]

 

 

[1]           Florida joins North Carolina, Maryland, Arizona, Michigan, Tennessee, Nevada, Utah and Oregon in adopting and enacting UCRERA.  The Connecticut legislature also introduced UCRERA in 2020.  See http://my.uniformlaws.org/committees/community-home?CommunityKey=f8e2d89b-f300-40eb-a419-ad41902fcad2 retrieved July 17, 2020.

 

[2]           Fla. Stat. Ann. § 714.01 et seq. (West), added by Laws c. 2020-106

 

[3]           See https://www.floridabar.org/the-florida-bar-news/uniform-commercial-real-estate-receivership-act-is-now-the-law-in-florida/

 

 

 

 

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