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How Do You Like Them Apples? PACA and Your Property

Enacted by Congress in 1930 and revised in 1984, the Perishable Agriculture Commodities Act (PACA) protects sellers of perishable agricultural commodities, defined as “fresh fruits and fresh vegetables of every kind and character whether or not frozen or packed in ice, and cherries in brine as defined by the Secretary of Agriculture” by subjecting a “merchant, dealer or broker” of perishable produce to a trust on the proceeds on the sale of perishable produce, and products derived from that produce, for the benefit of all unpaid suppliers and sellers (a “PACA Lien”).

Here are today’s essential PACA tidbits:

  • There is no requirement to record a PACA Lien in local property records, leading some to refer to them as “secret liens.”
  • This 88 year old act has become important to property owners, lenders, and title companies because of a 2013 New York state court case holding that PACA lien holders had a claim superior to the claim of a mortgage holder to a piece of real property. The Bank of New York, as Trustee, for the benefit of CWMBS, Inc. v. Kim, Index No. 1443-2008 (N.Y. Sup. Ct. Mar. 22, 2013) (County of Rockland).
  • At least one national title company takes exception in its title commitments for “[a]ny right, interest or claim that may exist, arise or be asserted against the Title under or pursuant to the Perishable Agricultural Commodities Act of 1930, as amended, 7 USC 499a et seq., the Packers and Stockyard Act of 1921, as amended, 7 USC 181 et seq., or any similar state laws.”
  • Removal of that exception requires: (i) an affidavit from the property owner that affirms “[n]either owner nor any tenant currently occupying the property owns or operates a grocery store, restaurant, or other business which purchases agricultural produce, and/or qualifies as a “dealer” under the Perishable Agricultural Commodities Act,” or (ii) an affidavit and indemnity in the title company’s favor with regard to any PACA Liens.
  • Landlords should consider whether a tenant might qualify as a dealer under PACA and, if so, the lease should include, specifically, an indemnity from the tenant to the landlord for any PACA Liens.

Stay tuned to the Mintz Levin Commercial Real Estate blog for further discussion on important aspects of this robust topic.

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Michelle McDonagh