Florida Governor Ron DeSantis has recently approved a law that restricts individuals who are not American citizens or permanent residents, especially those with a domicile in China, from acquiring certain types of land in the state. This prohibition primarily encompasses agricultural land and land within a ten-mile radius of military bases and critical infrastructures such as airports and wastewater treatment plants.

The law, which comes into effect on July 1, 2023, also includes criminal sanctions for anyone or any real estate company that intentionally sells Florida real estate to those impacted by these restrictions.

Although a felony is reserved for transactions involving a Chinese connection, the law also targets other nations. Individuals with permanent residences in Cuba, Venezuela, Syria, Iran, Russia, and North Korea also come under these regulations, with the penalty being a misdemeanor for transactions involving these countries.

Chinese individuals or investors with existing Florida real estate ties are not required by the law to divest their properties. However, they will have to register those interests with the state by January 2024, unless a de minimis exception applies.

In this context, de minimis refers to a trivial interest that does not warrant consideration. This exception applies to the ownership of registered securities in a publicly traded company owning the land where the interest constitutes less than 5% of any class of registered equities, or less than 5% in aggregate across multiple classes of registered securities, or it is a non-controlling interest in an entity controlled by a company registered with the SEC as an investment advisor under the Investment Advisers Act of 1940 and is not a foreign entity.

Since the de minimis exception is limited to publicly registered securities, it does not seem to exempt interests held by Chinese investors in private investment funds or privately-held companies.

The law, scheduled to come into force on July 1, 2023, has already been legally challenged. Chinese citizens residing and working in Florida have filed a lawsuit against the state, alleging that the law is discriminatory and imposes disproportionate punishments based on race, ethnicity, alienage, and national origin.

Florida is not alone in implementing such laws. At least 20 other states, including Pennsylvania, either prohibit or limit foreign ownership and investments in certain types of real estate. Additionally, at least 12 more states are contemplating bills to restrict foreign individuals’ rights to acquire real property.

At the federal level, there are various proposals to restrict foreign land ownership, including the Foreign Adversary Risk Management Act, or the FARM Act, and the Security and Oversight of International Landholdings Act, or the SOIL Act.

The Committee on Foreign Investment in the United States, or CFIUS, has also proposed new rules related to real estate ownership near military bases. This has led to lawmakers’ concerns about potential risks from foreign investors, particularly from China.

The Foreign Investment in Real Property Tax Act, or FIRPTA, was enacted in 1980 due to concerns about foreign ownership of U.S. farmland. It changed the tax laws to ensure that foreign taxpayers could not avoid capital gains tax when selling real estate, leveling the playing field with U.S. taxpayers.

It is not yet clear how many of these laws will withstand legal scrutiny. However, it is essential that both U.S. and foreign individuals understand the laws in their jurisdictions and comply with any reporting obligations. This also applies to entities that may include foreign investors, and U.S. individuals and entities that may enter into contracts or business agreements with impacted individuals and entities.

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