By Kenneth Dante Murena and Zachary Hyman

As more businesses struggle to continue operations and meet financial obligations, mortgage defaults are likely to surge resulting in a significant increase in lenders’ efforts to exercise their rights to recover amounts owed, including through foreclosure proceedings.  While Governor DeSantis has extended the moratorium on residential foreclosures, Executive Order Number 20-94 it does not explicitly prohibit lenders from seeking to foreclose on commercial real property (though administrative orders throughout the state have imposed a moratorium on all foreclosure actions).  As a result, as Courts reopen, they are likely to be inundated with commercial real estate foreclosures causing a backlog of cases that may further impair the value of commercial real estate already in decline as a result of the global health and economic crisis. Fortunately, the Uniform Commercial Real Estate Receivership Act (“UCRERA”), which, after the Florida Legislature unanimously passed it earlier this year and Governor DeSantis recently signed it into law, became effective on July 1, 2020, offers lenders and other interested parties efficient and effective remedies and procedures  to protect their interests in commercial real property in Florida, and personal property that is used to operate and maintain such commercial real estate.

UCRERA will provide certainty and uniformity among Florida’s Circuit Courts as to the circumstances under which a receiver can be appointed over commercial real property, the powers and duties of such a receiver, and the procedures a court should follow in a receivership proceeding.  In particular, the Act offers significant guidance to courts and litigants concerning when a receiver can be appointed to take possession of commercial real property serving as collateral for a loan in default, and in the context of other disputes involving commercial real estate.  The Act  permits a Court, in deciding whether to appoint a receiver, to consider whether the appointment is necessary to protect the property from waste, loss, substantial diminution in value, or impairment, and whether the owner of the real property agreed to the appointment of a receiver upon default, among other factors.  It also allows the Court to appoint a receiver without notice to the property owner or an opportunity for a hearing, provided the lender can show either that it will suffer immediate and irreparable harm if notice is given or that waste dissipation, impairment or substantial diminution in value of the property will occur if a receiver is not immediately appointed before notice can be provided and a hearing can be set.

Once appointed under UCRERA, the receiver is granted broad powers to take possession of and manage the subject property, and creditors are prohibited from using receivership property to satisfy their outstanding obligations without court approval.  UCRERA also permits a receiver, before judgment, to use, sell, license or transfer ownership in receivership property free and clear of any liens, or to adopt or reject executory contracts, under certain circumstances.  Moreover, UCRERA authorizes a receiver to provide notice to creditors who may be unaware of the foreclosure or receivership proceeding and to efficiently dispose of or satisfy claims of creditors, subject to court approval. Thus, UCRERA operates like a bankruptcy by permitting the receiver to efficiently administer the commercial real property during the pendency of litigation concerning its disposition.

Unlike the Bankruptcy Code, however, UCRERA  empowers the Court to require the person (including the owner or operator 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.  As a result, UCRERA can be an attractive alternative to bankruptcy for creditors seeking to protect their interests in commercial real property and avoid incurring the expenses necessary to do so.

In light of the significant number of lawsuits that will be filed in the near future and the expected backlog and resulting delays in adjudication of claims, UCRERA provides an efficient and balanced means to preserve the value of commercial real property during the pendency of the underlying litigation.  For more information on UCRERA and its effect on Florida jurisprudence, please tune into the Florida Bar Business Law Section’s Webinar: Florida’s Commercial Real Estate Receivership Law Substantively Changes July 1, 2020 – Are You Prepared? on July 30, 2020 at 12:00 pm.