With significant press coverage, Florida Gov. Ron DeSantis recently announced that the state would limit the ability of certain non-U.S. persons, businesses, and governments from acquiring agricultural land in Florida. Florida is not alone in taking action to limit foreign acquisition of real estate within their borders.
Alaska, Arkansas, Illinois, Iowa, Kansas, Maine, Missouri, and Ohio all currently require foreign investors to disclose acquisitions of certain real estate, much like the U.S. Federal Agricultural Foreign Investment Disclosure Act of 1978 (AFIDA). In fact, Illinois, Maine, and Wisconsin, allow acquirers to fulfill their reporting requirements by submitting a copy of applicable federal AFIDA reports.
Ohio, Pennsylvania, South Carolina, South Dakota, and Wisconsin limit foreign investment in real estate based on the number of acres, while Iowa, Minnesota, Missouri, Nebraska, North Dakota, and Oklahoma ban foreign ownership of certain land completely.
Without the same fanfare, the Committee on Foreign Investment in the United States (“CFIUS”) published a proposed rule on May 4, 2023, expanding CFIUS’s current regulations to cover eight additional government installations.
Expansion of Protected U.S. Real Estate
The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) established CFIUS jurisdiction to real estate in proximity to specific airports, maritime ports, or military installations. The relevant installations are listed by name and location in an appendix to the CFIUS regulations. The May 4 rule proposes to add the following eight installations to the expanded geographic coverage list:
- Air Force Plant 42, located in Palmdale, California
- Dyess Air Force Base, located in Abilene, Texas
- Ellsworth Air Force Base, located in Box Elder, South Dakota
- Grand Forks Air Force Base, located in Grand Forks, North Dakota
- Iowa National Guard Joint Force Headquarters, located in Des Moines, Iowa
- Lackland Air Force Base, located in San Antonio, Texas
- Laughlin Air Force Base, located in Del Rio, Texas
- Luke Air Force Base, located in Glendale, Arizona
Expansion of CFIUS Beyond U.S. Defense Industrial Base
Historically, businesses involved in the U.S. defense industrial base have been protected from foreign direct investment by CFIUS. FIRRMA expanded those historic protections to include certain Critical Technologies, Critical Infrastructure, and Sensitive Data – collectively referred to as covered “TID.”
FIRRMA specifically expanded CFIUS to address national security concerns arising from foreign direct investment impacting critical infrastructure and sensitive government installations. Part 802 of FIRRMA established CFIUS jurisdiction and review for certain covered real estate, including real estate in proximity to specified airports, maritime ports, and military installations, and other critical infrastructure.
Unlike covered Section 1758 technologies that can trigger a mandatory CFIUS filing, CFIUS jurisdiction for covered real estate currently remains only a voluntary filing. Regardless, the addition of the eight additional installations to the 100-mile “extended range” proximity coverage of Part 802 will result in substantially more covered real estate. As a result, early diligence remains critical to any transaction in the United States that may result in foreign ownership or control of real estate.
Expansion of Protected Real Estate Elsewhere
In closing, it should be noted that the U.S. is not alone. The United Kingdom and the European Union both have legislative frameworks governing the investment in real estate. Many other industrialized countries, such as Australia, China and Japan, have similar regimes.
More specifically, the UK has taken steps to improve transparency around foreign ownership of UK property. The war in Ukraine and subsequent sanctions against Russia catapulted the issue to the top of the political agenda. As part of the UK Economic Crime (Transparency and Enforcement) Act 2022, the register of overseas entities went live on August 1, 2022. The register is maintained by Companies House and requires overseas entities which own land in the UK to disclose details of their beneficial owners. Failure to comply with the new legislation will impact any registration of ownership details at the UK Land Registry (and thus the relevant legal and equitable ownership rights in any relevant property) and officers of any entity in breach will also be liable to criminal proceedings.
Whether a buyer or a seller, all real estate transactions should include an analysis of the citizenship of the interested parties, the nature of the land, the applicability of U.S., UK or laws that can impact the parties, timing, or transaction. Additional information on the proposed CFIUS rule is in the Federal Register notice, and additional general information on U.S. CFIUS / FIRRMA located from the Treasury’s website.
Womble Bond Dickinson’s transatlantic attorneys have experience assisting U.S., UK, and other international business with cross border transactions. Our attorneys can help safeguard transactions involving export controls and foreign direct investment in a variety of jurisdictions around the globe, including early diligence to identify required licenses, registrations, disclosures, and filings. We also can assist with the creation of special purpose entities to mitigate foreign ownership, control and influence (FOCI) of businesses, technology, and real estate.
About the Authors
David Vance Lucas – WBD Global Solutions Team (U.S.)
For over three decades, David Vance Lucas has applied his legal, technological, and operational experience to craft strategic advice on intellectual property, international trade, and complex litigation matters – throughout the U.S., U.K. and Europe. He accumulated much of this experience while serving as general counsel for a global technology company and a clinical laboratory software company. David utilizes this experience and legal acumen to advise C-suites and boards of directors (public and private) on legal, compliance, and operational issues.
Andrew Tuggle – WBD Global Solutions Team (U.S.)
Andrew is a trusted advisor to clients in many areas of international trade. He guides clients through government regulations of cybersecurity, exports, and cross-border transactions. Andrew closely monitors the regulatory environment to keep clients in compliance with international sanctions, import and export regulations, and rules about foreign direct investment. Andrew also crafts compliance programs (including training programs) that are customized to specific business operations and goals.
Charlie Reid – WBD Global Solutions Team (UK)
Charlie is a finance lawyer based in London. He has extensive experience advising lenders (banks, development finance institutions, funds and other alternative lenders) and borrowers in developed and emerging markets. He has advised across multiple sectors on a broad range of finance transactions including syndicated corporate lending, acquisition finance, infrastructure and other project finance, private equity and funds finance, asset-based lending, trade finance, cross-border private placements and restructurings.
This article is part of Womble Bond Dickinson’s Growing Global series. For more insights, click here to visit our Growing Global hub.