For many years, commercial lenders have struggled with ways to protect their collateral following a borrower’s default. If a lender wanted to appoint a receiver to ensure the collateral maintained its value, Florida law provided inconsistent guidance and was a patchwork of different legal opinions detailing when appointment was appropriate and what powers the receiver would possess. Fortunately, a new Florida law will finally provide welcome clarity, certainty and expediency in the appointment of receivers in commercial property litigation and related foreclosures. Florida’s Uniform Commercial Real Estate Receivership Act (UCRERA, Fla. Stat. § 714, et seq.), which became effective July 1, 2020, does not create a new route to sue a defaulted borrower, but instead aims to streamline Florida law in order to provide lenders with additional options to protect their collateral when initiating a lawsuit involving commercial real property.
UCRERA applies only to a receivership initiated in Florida for an interest in commercial real property or personal property incidentally related to or used in in the operation of that commercial property. Because UCRERA addresses commercial property, it exempts certain types of property that are not commercial in nature, including homestead property and personal property used primarily for personal, family, or household purposes.
When can a Receiver be Appointed?
Prior to judgment, a court may appoint a receiver to protect a party that demonstrates a right, title or interest in the real property if that property or its revenue potential is in danger of waste, loss, decrease in value, impairment, or has been subject to a voidable transaction. After a judgment has been obtained, UCRERA allows the appointment of a receiver: i) to carry out the judgment; ii) to preserve the real property pending appeal, or when an execution has been returned unsatisfied and the owner refuses to apply the property in satisfaction of the judgment; iii) on equitable grounds; or iv) during the time allowed for redemption, to preserve real property sold in an execution or foreclosure sale and secure its rents. UCRERA also lists several additional factors for consideration, including, whether the contracts allow for a receiver and is the real property and other collateral sufficient to satisfy the secured obligation.
Importantly, UCRERA allows the court to appoint a receiver without prior notice in certain situations. However, the court may condition the appointment on the requesting party providing security that would pay for damages, attorneys’ fees, and costs if the court later concludes that a receiver was unnecessary.
What Powers does a Receiver have?
UCRERA grants a receiver broad powers in the management of receivership property. For example, the receiver can, in the ordinary course of business, collect, control, conserve, and protect receivership property; operate a business constituting receivership property; incur unsecured debt and pay expenses incidental to the receiver's preservation, use, sale, lease, license, exchange, collection, or disposition of receivership property; and upon subpoena, compel a person to submit to examination under oath, or to produce and permit inspection and copying of designated records or tangible things that concern the receivership property. The receiver may also demand that a person in possession of receivership property or who owes a mature debt that is receivership property, pay that debt or turn over that property to the receiver. Outside of the ordinary course of business, a receiver is entitled to perform similar management of receivership property before and after judgment, as long as the receiver obtains the property owner’s consent and court approval, notice is provided to all parties with an interest in the property, and a hearing is held.
Importantly, receivership property transferred pursuant to these powers is transferred free and clear of any liens on the property, but existing liens attach with the same validity and priority to the proceeds resulting from the transfer. UCRERA also empowers the receiver to accept or reject an executory contract (e.g., a lease) of the owner relating to receivership property.
How is a Receiver Paid?
UCRERA provides that if there are insufficient funds from the receivership property to pay the receiver, the court may require the person (or entity) that requested the appointment of the receiver to pay the fee. Alternatively, the court may require that the debtor or property owner whose conduct justified the appointment of the receiver pay the receiver’s compensation.
Expansion of Florida State Court Powers
UCRERA gives Florida state courts certain powers that are similar to federal bankruptcy courts. For example, a Florida court is empowered to enter a stay of any act or proceeding that seeks to obtain possession, control or to enforce a judgment against the receivership property, or to enforce a lien against the receivership property in certain situations. Further, the court may enjoin a case or proceeding involving receivership property if the injunction is necessary to protect against misappropriation or waste of receivership property. Courts also are responsible for supervising the receiver and resolving any controversy related to the receiver.
In general, UCRERA requires the owner of the real property to assist and cooperate with the receiver in the fulfillment of the receiver’s duties. If an owner knowingly fails to perform the specified duties, UCRERA provides that the court may sanction the owner and award the receiver actual damages and reasonable attorneys’ fees and costs.
UCECRA provides clear guidelines and much needed structure for the appointment and governance of a receiver in a commercial real property case. Lenders faced with injury or waste to collateral securing their loan now have a clear and defined process to utilize to protect their rights and ability to recover. In all, UCECRA provides a critical tool in a lender’s post-default tool kit.