Hotel Receiverships – Receivers Must Be Cautious in Dealing with Unions

27 July 2020 Coronavirus Resource Center:Back to Business Blog
Authors: Andrew T. McClain

The COVID-19 pandemic has upended the global economy and negatively affected nearly every industry.  One particularly hard hit industry is hospitality.  Trade shows have been canceled, business travel has paused, and people are simply reluctant to travel unless necessary.  Occupancy rates have significantly decreased due to this drop in demand.  As a result, it is likely that property owners will miss loan payments leading to loan defaults and foreclosures. 

One remedy commonly exercised by lenders is the appointment of a receiver.  A receiver is a court-appointed officer tasked with taking over control and management of the property.  Unions are a unique issue that arise in the context of hotel receiverships.  Receivers must consider unions when determining how to navigate the transfer of control and management of the property.  Before seeking appointment of a receiver, lenders should have any applicable collective bargaining agreement (“CBA”) for each union at the property carefully reviewed and analyzed.  CBAs may contain specific notice requirements, terms related to successor liability, obligations when in distress, and other provisions related to transfer of control and management.  Failing to follow the specific requirements of the CBA can sometimes result in a breach of the CBA and possible liability. Lenders and receivers should also review all applicable laws to determine what impact, if any, they have on the transfer of control and management of a union hotel. 

As governments start to lift foreclosure moratoriums and related restrictions and courts resume normal operations, lenders have more options to enforce their rights, including through foreclosure and the appointment of a receiver.  Now is the time to review CBAs and applicable laws to best prepare for the anticipated uptick in foreclosures and receiverships. 

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