ARIZONA’S NEW RECEIVERSHIP STATUTE: REVIEWED, INTERPRETED AND APPLIED©, PART III

August 14, 2020

Scope:  To What Does the Act Apply?

The Act only relates to persons who have an “interest in” most types of commercial real estate.   A receivership under the Act will, of course, also cover personal property located on or used in the operation of that real property.  A.R.S. §33-2603(A).

The Act, however, does not apply to certain types of real estate which may otherwise be considered commercial in common parlance.  If the land has four or fewer homes, it is not subject to a receivership proceeding under the Act if: (1) the owner lives on the property as her primary residence and any agricultural, mineral extraction, industrial or other commercial activity on the property is “merely incidental”; (2) the owner lives on the property and the property is collateral for a loan obtained at a time the property was not used for any agricultural, mineral extraction, industrial or other commercial activity on the property”; (3) the owner did not and does not plan to develop the property to have one or more homes to be sold in the ordinary course of the owner’s business; and (4) the owner is not collecting rent and does not have the right to collect rent or other income from the property from a person who is not an affiliate (a term defined by A.R.S. §33-2601(1)).     See A.R.S. §33-2603(B). 

A few illustrations are useful.  The Act is applicable if the owner lives in a home on a farm on which he grows crops for sale but not if the owner lives in a house with a garden in which she grows fruits and vegetables for her family’s consumption.   It will be applicable to a person who lives in a house built by him as a spec home for sale as part of his business as a builder.  The Act would not, however, apply to an owner who leases her pool home or back yard cottage to her 21 year-old son who just got his first post-college job.   Finally, even if the owner does not live in a house located on the parcel, it will not be covered by the Act and the court may not appoint a receiver so long as she is not using the property for commercial activity.

It is unclear whether the Act is applicable to a borrower who leases, but does not own, commercial real estate.  A literal reading of Section 33-2603(A) supports an argument that the Act may govern the receivership of a lessee because the key phrase in that subsection is “receivership for an interest in” commercial real estate. A leasehold is “an interest in” the property.  The term “receivership property”, used throughout the Act, is defined at Section 33-2601(16) to be “the property of an owner that is described in the order appointing a receiver or a subsequent order.”  An “owner” is “the person for whose property a receiver is appointed” pursuant to A.R.S. §33-2601(1).  Thus, a lender would have a good argument that there is nothing in the Act that prohibits a lease of commercial real estate from being receivership property to which the Act is applicable.

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