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Congress May Expand CFIUS Oversight of Certain Real Estate Transactions, but Many States Already Have Restrictive Foreign Investor Laws in Place

November 5, 2024

Congress May Expand CFIUS Oversight of Certain Real Estate Transactions, but Many States Already Have Restrictive Foreign Investor Laws in Place

November 5, 2024

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The bill would mandate that CFIUS review transactions involving foreign investments in U.S. agriculture, including farmland. 

In recent months, congressional legislation has been introduced that would grant the Committee on Foreign Investment in the United States (CFIUS) additional authority to review transactions involving the purchase of U.S. farmlands by foreign nationals. As discussed below, while it is unclear whether such legislation may ultimately be signed into law, it is important for foreign investors to realize that a number of states have already enacted laws that place restrictions on certain foreign nationals with respect to certain real estate transactions.

CFIUS Jurisdiction Over Certain Real Estate Transactions and Recent Congressional Bills

CFIUS is authorized to review any transaction that could result in a foreign person obtaining the ability to control a U.S. business for potential threats to U.S. national security. In addition, pursuant to the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), CFIUS has the authority to review noncontrolling investments in U.S. businesses involving certain critical technology, critical infrastructure or sensitive personal data (i.e., TID U.S. businesses) and transactions involving certain strategically sensitive real estate in the United States. Significantly, FIRRMA also provides CFIUS with authority to review pending or completed transactions even absent a voluntary filing by the parties (known as non-notified and nondeclared transactions).

On November 1, 2024, the Treasury Department issued a final rule that will expand CFIUS’ jurisdiction over foreign real estate transactions involving certain real estate that is located within:

  1. A one-mile radius of 40 additional military installations;
  2. A 100-mile radius of 19 additional military installations; and
  3. A 100-mile radius of eight military installations that were already listed in the regulations.

The final rule will enter into effect 30 days after it is published in the Federal Register.

On September 11, 2024, the U.S. House of Representatives passed the Protecting American Agriculture from Foreign Adversaries Act of 2024 (H.R. 9456). This bill seeks to increase oversight and restrict foreign investment in U.S. agriculture. The bill would mandate that CFIUS review transactions involving foreign investments in U.S. agriculture, including farmland. The Senate is also considering a bill that would expand CFIUS’ authority to limit foreign investment in agricultural land in the United States.

State Restrictions on Certain Real Estate Transactions by Certain Foreign Nationals

While Congress considers enacting legislation to restrict foreign investment in agricultural land, a number of states have considered new restrictions on foreign ownership, and several states have already passed their own laws that restrict foreign investment in real property. Furthermore, a number of states have had restrictions on foreign ownership of real property dating back decades. As discussed below, some of these laws are quite controversial and have been challenged in court.

Florida

Florida’s Senate passed a bill, effective July 1, 2023, that restricts certain foreign nationals from acquiring real property in the state. Florida Senate Bill 264 (SB 264) restricts the conveyance of real property in Florida to individuals and entities associated with certain foreign countries. Key provisions of the bill include:

  • Prohibitions on acquisition: Foreign nationals from China, Russia, Iran, North Korea, Cuba, Venezuela and Syria cannot purchase or lease agricultural land or real property within 10 miles of military installations or critical infrastructure.
  • Restrictions on Chinese ownership: Chinese citizens and residents are barred from owning or leasing more than 5 percent of any real property in Florida.

Florida SB 264 prohibits foreign nationals or entities owned by principals from the countries listed above from owning, having a controlling interest or acquiring agricultural land or real property, or having any interest (that in some events may be a leasehold interest) within 10 miles of any military installation or critical infrastructure in Florida. Florida SB 264 also includes a broad prohibition on Chinese citizens and people domiciled in China from buying and/or leasing real property in the state of Florida. Specifically, any interest of over 5 percent in a company that is held by any foreign principal from China is barred.

Foreign nationals should be aware of these restrictions when buying or leasing real property and assess whether real estate acquired after July 1, 2023, is implicated. If foreign nationals already own real estate in Florida acquired before July 1, 2023, they may continue to own or lease the real estate but not make additional acquisitions. They were also required to register with the Department of Economic Opportunity by January 31, 2024. Such foreign nationals are subject to a fine of $1,000 each day the registration is delayed. Property acquired by foreign nationals prior to July 1, 2023, is not affected by this new law.

Since its enactment, Florida SB 264 has faced numerous legal challenges from immigrant rights groups, affected foreign nationals and property owners. In February 2024, the U.S. Court of Appeals for the 11th Circuit granted an injunction, limited to two individual plaintiffs (Case No. 23-12737). In its ruling, the court suggested the state statute may be preempted by FIRRMA.

While the 11th Circuit found that Florida SB 264 is likely preempted by federal law, the court did not address in its holding any equal protection clause or Fair Housing Act arguments. SB 264 draws from the Chinese Exclusion Act of 1882 and the Immigration Act of 1924―federal laws that banned Chinese laborers from entering the country. These laws barring Asian immigration famously were a precursor to the World War II Japanese internment camps, which were upheld by the Supreme Court in Korematsu v. United States (1944).

The concurring opinion in the 11th Circuit ruling emphasizes the 14th Amendment’s equal protection clause and its application to both citizens and noncitizens. The concurrence pushed back on laws restricting or denying foreign nationals’ right to own land within the United States, stating “Those holdings may have had support in 1923, but it is now 2024 where ‘state classifications based on alienage are subject to ‘strict judicial scrutiny.’”

Despite the injunction, Florida can still enforce SB 264 against anyone other than the two plaintiffs in the case for all other real estate transactions in in the state. While the Court of Appeals made clear this injunction is a narrow and temporary ruling, the opinion signals skepticism of SB 264’s validity. 

The ongoing debate over foreign land ownership in Florida reflects broader concerns about national security and economic implications. Other states have introduced laws similar to Florida’s SB 264,

Illinois

Illinois lawmakers have introduced several proposed laws to regulate foreign ownership of land in the state. House Bill 4345, proposed in January 2024, would prohibit ownership or a controlling interest in real property in the state by businesses principally located in China or by any person who is domiciled in the China and who is not a citizen or lawful permanent resident of the United States.

Texas

Texas Senate Bill 147 proposed a ban on land ownership by citizens and businesses of China, Iran, North Korea and Russia. Following protest and opposition, lawmakers proposed a watered-down bill that removed the prohibitions on home ownership. In the end, this bill was ultimately defeated.

Georgia

Georgia’s SB 420 bans any “agent” of China, Hong Kong, Cuba, Iran, Venezuela, North Korea or Russia from buyingor leasing farmland or commercial real estate in Georgia within 10 miles of military properties, with some exceptions. This law was enacted and became effective July 1, 2024. Georgia SB 420 also bans United States-based companies that have an equity ownership interest of at least 25 percent by a company domiciled in China, Hong Kong, Cuba, Iran, Venezuela, North Korea or Russia from buying, owning and/or leasing farmland and/or commercial real estate near military properties. Georgia SB 420 also provides that if such real estate is owned or leased by either the “agent,” as described above, or by the U.S. company with the equity ownership described above, both sets of owners and/or tenants of such real property must divest such possessory interest no later than June 30, 2027. Georgia SB 420 includes a criminal felony penalty for violations by individuals of this law.

Virginia

Virginia’s SB 1438 prohibits any “foreign adversary” from acquiring or transferring any interest in farmland. “Foreign adversaries” include government or nongovernment persons from China, Cuba, Iran, North Korea, Russia or Venezuela. This law forbids such foreign adversaries from acquiring any right, title or any interest in agricultural land or any organization that holds any interest in agricultural land. SB 1438 provides for the nullification of the transaction, ejection of the foreign adversary from possession, or the right to quiet title to parties of the transaction or the interest’s subsequent owner. The law also requires the state Department of Agriculture and Consumer Services to compile and publish an annual report regarding foreign ownership of agricultural land within Virginia. 

About Duane Morris

Attorneys in the firm’s Immigration Law Group, Real Estate Practice Group and International Practice Group have considerable experience in assisting clients on a wide range of matters, including assisting in determining the applicability of foreign direct investment control laws and its effects on foreign nationals.

For More Information

If you have any questions about this Alert, please contact Geoffrey M. Goodale, Amelia H. Huskins, Ted J. Chiappari, Joel N. Ephross, P.C., Isabella Castellón Lebrón, any of the attorneys in our International Practice Group, and of the attorneys in our Real Estate Practice Group, any of the attorneys in our Immigration Law Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.