What Florida’s SB 264 Means for Foreign Ownership of Real Property

This past July, Florida became the latest state to adopt legislation with the goal of restricting foreign governments and individuals from real property ownership. Florida’s controversial new bill, SB 264, Interests of Foreign Countries is the 15^th state-level bill enacted in 2023 related to such matters, with state lawmakers introducing similar bills in another 20 states. Unlike the FIRPTA certifications related to tax withholdings for “non-foreign sellers” that real estate practitioners have been familiar with for years, SB 264 and these other state bills restrict the right of ownership itself.

These bills raise a variety of interesting questions related to constitutionality, including federal preemption, equal protection and due process. SB 264, in fact, is currently being challenged in federal court in the Northern District of Florida, for example. As these challenges go through the courts, investors and practitioners in Florida will need to understand the basics of SB 264.

Foreign Principals & Countries of Concern

SB 264 defines “Foreign Principals” as the following: (a) the government or any official of the government of a foreign country of concern; (b) a political party or member of a political party or any subdivision of a political party in a foreign country of concern; (c) a partnership, association, corporation, organization, or other combination of persons organized under any laws of or having its principal place of business in a foreign country of concern, or a subsidiary of such entity; (d) any person who is domiciled in a foreign country of concern and is not a citizen or lawful permanent resident of the United States; and (e) any person, entity or collection of persons or entities described in paragraphs (a) through (d) having a controlling interest in a partnership, association, corporation, organization, trust, or any other legal entity or subsidiary formed for the purpose of owning real property in Florida.

“Foreign Country of Concern” includes the People’s Republic of China, the Russian Federation, the Islamic Republic of Iran, the Democratic People’s Republic of Korea, the Republic of Cuba, the Venezuelan regime of Nicolás Maduro and the Syrian Arab Republic, including any agency of or any other entity of significant control of such foreign country of concern.

Restrictions of SB 264

Foreign principals cannot directly or indirectly own, have a controlling interest in or acquire by purchase, grant, devise or descent any agricultural land in Florida. “Agricultural land” is defined as that land classified as agricultural by the applicable county appraiser, pursuant to Florida Statute 193.461.

Additionally, foreign principals cannot directly or indirectly own, have a controlling interest in or acquire by purchase, grant, devise or descent any real property located within 10 miles of a military installation or critical infrastructure facility. Critical infrastructure facilities include chemical manufacturing facilities, refineries, electrical power plants, water treatment facilities, wastewater treatment plants, liquid natural gas terminals, telecommunications central switching offices, gas (and natural gas) processing plants, seaports, spaceports and airports.

There are limited exceptions for a “de minimus” (sic) ownership interest if the foreign principal owns an indirect interest in the real property by virtue of their ownership in a publicly traded company that owns the property and that ownership is either (a) less than 5 percent of any class of registered equities or less than 5 percent in the aggregate of multiple classes of securities; or (b) a non-controlling interest in an entity controlled by a company that is both registered with the U.S. Securities Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended, and is not a foreign entity.

“Controlling Interest” in the context of SB 264 means an individual or entity with possession of the power to direct or cause the direction of the management or policies of a company, whether through ownership of securities, by contract, or otherwise.  A person or entity that directly or indirectly has the right to vote 25 percent or more of the voting interests of the company or is entitled to 25 percent or more of its profits is presumed to possess a controlling interest.

These restrictions related to agricultural land and proximity to military and critical infrastructure apply to foreign principals from all of the listed foreign countries of concern.

China-Specific Restrictions 

There are additional China-specific restrictions in Section 692.204 of SB 264 related to the ownership of any real property in Florida. The following persons or entities may not directly or indirectly own, have a controlling interest in, or acquire by purchase, grant, devise, or descent any interest, except a “de minimus indirect interest”(sic), in real property in Florida.

1. The People’s Republic of China, the Chinese Communist Party, or any official or member of the People’s Republic of China or the Chinese Communist Party and its related Foreign Principals;
2. Any other political party or member of a political party or a subdivision of a political party in the People’s Republic of China;
3. A partnership, association, corporation, organization, or other combination of persons organized under any laws of or having its principal place of business in the People’s Republic of China, or a subsidiary of such entity;
4. Any person who is domiciled in the People’s Republic of China and who is not a citizen or lawful permanent resident of the United States; and
5. Any person, entity or collection of persons or entities described in paragraphs (a) through (d) having a controlling interest in a partnership, association, corporation, organization, trust, or any other legal entity or subsidiary formed for the purpose of owning real property in Florida.

Exemptions and Timing

In addition to the de minimis exception, SB 264 also includes several other exemptions.

• An exemption for “a natural person” to purchase one residential property that is up to two acres in size and not within five miles of any military installation if the property is in the name of a person who has either a current verified United States Visa that is not limited to authorizing tourist-based travel, or official documentation confirming that the person (i) has been granted asylum in the United States, and (ii) authorizes the person to be legally present within [Florida].
• If there is an acquisition of land by a foreign principal by means of devise, descent, enforcement of security interests, or collection of debts, the transfer may occur, but the foreign principal will be required to transfer such real property within three years after such acquisition.

Foreign principals who owned property prior to July 1, 2023, will not be required to dispose of their interests but will be required to disclose their ownership to the Florida Department of Economic Opportunity (by December 31, 2023) or the Department of Agriculture and Consumer Services (by January 1, 2024), as applicable. Foreign principals who acquired property after July 1, 2023, will also need to register their property with the Department of Economic Opportunity within 30 days of such acquisition.

Impact & Penalties of SB 264

The full impact of SB 264 remains to be seen. The property registration requirements include an affidavit stating that the buyer is not a foreign principal and is otherwise in compliance with SB 264. While the world awaits the Florida Real Estate Commission’s regulations and safe harbor language, there are proposed forms from the Florida Land Title Association that have been submitted for consideration. Failure to register and provide the affidavit could result in monetary penalties of $1,000 per day for each day that the registration is late. Additional SB 264 penalties include the potential civil forfeiture of the property to the state of Florida.

SB 264 also includes provisions for criminal penalties for sellers of agricultural land or land near critical infrastructure or military installations. Criminal penalties for selling any interest in real property to a foreign principal of China are more severe and such disposition could be considered a felony.

As practitioners await clear guidance from the state, there are a number of practical questions that remain unanswered.

• The law contemplates the acquisition of real property by “purchase, grant, devise or descent”. This would not appear to apply to leasehold interests.
• The law does not contemplate ownership interests in private real estate funds and does not define what constitutes an “indirect interest” in real property.
• Private equity funds and other joint ventures do not have a clear path to understanding potential future investment opportunities in Florida if they include investors from a foreign country of concern.
• Funds and other joint ventures that already own property in Florida and have limited partners or other investors from foreign countries of concern will need clear guidance on how to comply with the registration requirements.
• With monetary, criminal and asset forfeiture penalties available, sellers of property need to take extra care to ensure that their sale is not in violation of SB 264.
• Sellers should consider requiring affidavits from all buyers that both acknowledge the existence of SB 264 and that confirm that they are not a foreign principal. Like the FIRPTA certification, these documents will likely become a standard part of the closing package for Florida transactions, but sellers may want to get ahead of the official guidance by including such affidavits now.
• Sellers should further consider including reps and warranties related to SB 264 in their purchase and sale agreements and may even want to establish standards for due diligence of potential buyers during any negotiation or bidding process.

These open questions in Florida and the other states that have adopted similar laws present additional challenges as real estate investment opportunities are evaluated and considered. There are sure to be many traps for the unwary as guidance evolves. Both buyers and sellers should discuss the local developments in the law with counsel to ensure compliance.

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