Florida's Interests of Foreign Countries bill becomes law – real property impacts

The provisions of Florida’s SB 264, the Interests of Foreign Countries, take effect on July 1, 2023. The law’s purported goal is to increase transparency regarding foreign influence in Florida. It aims to accomplish this goal by, inter alia, restricting conveyances of real property interests to certain foreign governments, as well as other entities and persons affiliated with those governments.

A modified version of SB 264 was signed into law by Governor Ron DeSantis on May 8, 2023 as Chapter 2023-33, Laws of Florida.

The bill was introduced by Florida Senators Jay Collins and Bryan Avila and was unanimously passed by the Florida Senate on April 11,2023.

The restrictions

As of July 1, 2023, the real property restrictions relating to agricultural land and proximity to military and critical infrastructure, as further described below, will apply to the following “foreign countries of concern”: 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 and extends to the following:

1. the government or any official of the government of a foreign country of concern
2. a political party or member of a political party or any subdivision of a political party in a foreign country of concern
3. 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
4. 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
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 (the parties described in (a) through (e) are “Foreign Principals”).

While the sections of the law that address the ownership of real estate do not define “controlling interest,” other portions of the law define “controlling interest” to mean 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.  

A Foreign Principal may have a “de minimus indirect interest” in such real property if any ownership is a result of the Foreign Principal’s ownership of registered equities in a publicly traded company owning the land and if such ownership interest is either (a) less than 5 percent of any class of registered equities or less than 5 percent in the aggregate in multiple classes of registered equities; or (b) a non-controlling interest in an entity controlled by a company that is both registered with the US Securities Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended, and is not a foreign entity.

However, only the People’s Republic of China and its related Foreign Principals will be prohibited from directly or indirectly acquiring any real estate in Florida, other than (a) a de minimus interest or (b) one residential real property that is up to two acres in size subject to meeting certain criteria as further described below.

While the acquisition of real property in the United States by such foreign parties may already be subject to review by the Committee on Foreign Investment in the United States (CFIUS), Chapter 2023-33 does not create a review process, but instead provides for outright prohibitions relating to Florida real estate transactions by Foreign Principals.

Real property restrictions

Subject to few exceptions, as of July 1, 2023, Chapter 2023-33 will restrict the transfer of real property in the following three ways:

1. Restrictions on the acquisition and ownership of agricultural land. A Foreign Principal will be prohibited from directly or indirectly owning, having a controlling interest in, or acquiring an interest in agricultural land in Florida, except for a de minimus indirect interest as described above, in such land. Per this new law, “agricultural land” is land classified as agricultural by the property appraiser, as more specifically detailed in Florida Statute 193.461.
   
   If a Foreign Principal directly or indirectly owns an interest in agricultural land in Florida prior to July 1, 2023, such Foreign Principal will not be required to transfer such interests, but must, unless subject to an exception, disclose its ownership by registering with the Florida Department of Agriculture and Consumer Services prior to January 1, 2024.
   
   
2. Restrictions on the acquisition and ownership of military installations and critical infrastructure facilities. A Foreign Principal will be prohibited from directly or indirectly owning, having a controlling interest in, or acquiring an interest in real property that is within 10 miles of any military installation or critical infrastructure facility in Florida, subject to a few exceptions, including the right to hold a de minimus indirect interest as described above and to allow a natural person to purchase one residential real property that is up to 2 acres in size if it is not within 5 miles of any military installation and the property is in the name of a person who has either (i) a “current verified United States Visa that is not limited to authorizing tourist-based travel,” or (ii) “official documentation confirming that the person has been granted asylum in the United States,” and (iii) “such visa or documentation authorizes the person to be legally present within [Florida].”
   
   The new law defines a “military installation” as a “base, camp, post, station, yard or center encompassing at least ten contiguous acres that is under the jurisdiction of the Department of Defense or its affiliates.” Further, each of the following sites is considered a “critical infrastructure facility”:
   
   
   • a chemical manufacturing facility
   • a refinery
   • an electrical power plant as defined in s. 403.031(20)
   • a water treatment facility or wastewater treatment plant
   • a liquid natural gas terminal
   • a telecommunications central switching office
   • a gas processing plant, including a plant used in the processing, treatment, or fractionation of natural gas
   • a seaport as listed in s. 311.09
   • a spaceport territory as defined in s. 331.303(18) and
   • an airport as defined in s. 333.01.
   
   If a Foreign Principal directly or indirectly owns an interest in such land prior to July 1, 2023, such Foreign Principal will not be required to transfer its interests, but must, unless subject to an exception, disclose its ownership by registering with the Florida Department of Economic Opportunity prior to December 31, 2023.
   
   
3. Restrictions on the acquisition and ownership of any real property – People’s Republic of China. Chapter 2023-33 will prohibit Chinese Foreign Principals (defined below) from directly or indirectly owning, having a controlling interest in, or acquiring an interest in Florida real property.  A "Chinese Foreign Principal" is any of the following:
   
   
   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.
   
   The original bill was modified to allow the right of such Chinese Foreign Principals to hold a de minimus indirect interest as described above and to provide 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 (i) a “current verified United States Visa that is not limited to authorizing tourist-based travel,” or “official documentation confirming that the person has been granted asylum in the United States,” and (ii) “such visa or documentation authorizes the person to be legally present within [Florida].”
   
   Should such Chinese Foreign Principal directly or indirectly own an interest in Florida real property prior to July 1, 2023, such party will not be required to transfer such interests, but must, unless subject to an exception, disclose its ownership by registering with the Florida Department of Economic Opportunity prior to December 31, 2023.

Transfers occurring post-July 1, 2023

In any of the above scenarios, if, after July 1, 2023, there is an acquisition of land by a Foreign Principal through an exception, such as 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 acquisition.

Starting on July 1, 2023, purchasers of property in Florida will be required to provide an affidavit that such purchaser is not a party prohibited from purchasing property under Chapter 2023-33.  Further, it is a misdemeanor of the first degree for a seller to knowingly sell property or any interest therein in violation of the law.  Finally, a failure to register as required could result in fines and liens against the property for unpaid fines, and violations of Chapter 2023-33 could result in forced disposition of the land and criminal penalties.

Other sector impacts

In addition to the restrictions on the acquisition and ownership of real property, Chapter 2023-33 also restricts the ability of Florida governmental entities to contract with certain foreign countries and affiliated entities and persons and sets forth requirements regarding the physical storage of certain electronic health records and personally identifiable information. This legislative alert focuses only the real estate restrictions of Chapter 2023-33, and we encourage a full read of Chapter 2023-33 to assess its full impact.

Future impact of Chapter 2023-33

The ACLU of Florida, together with other organizations and individuals, has filed an action to challenge Chapter 2023-33 based on claims of discrimination, and others may join or follow suit.

The impact of this law as it relates to international investment in the Florida real estate community is unknown. For example, (a) the law does not expressly address or exclude timeshare interests constituting “Real Property,” interests in real estate funds that are not publicly traded or EB-5 interests and (b) given the proximity of urban cores to airports and seaports in particular, the law could prevent Foreign Principals, even those meeting the criteria and allowed under the laws of their country, from acquiring or investing in, for example, multiple residential condominium units or businesses.

The Florida Real Estate Commission is tasked with adopting rules relating to the affidavit to be provided at closing by a buyer confirming such buyer’s satisfaction of the criteria or inapplicability of this law, and other agencies and departments in Florida have been directed to adopt additional rules as applicable.

To learn more about the implications of Chapter 2023-33 on your business, please contact any of the authors.