Recent acquisitions of land by foreign buyers have sparked concern that the current jurisdiction of the Committee on Foreign Investment in the United States (CFIUS) to review such transactions is not broad enough. CFIUS, Congress and various state legislatures have all taken action to address the perceived threats arising from foreign real estate acquisitions in the United States. Although CFIUS action took the form of a proposed rule, and various proposed bills have been introduced in Congress, some states have already enacted legislation restricting or prohibiting foreign real estate acquisitions. Foreign persons contemplating U.S. real estate transactions should monitor the CFIUS proposed rule and bills pending in Congress and be aware of existing and proposed legislation applicable in the state in which the land is located.

Background

The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) gave CFIUS jurisdiction to review certain real estate transactions that did not fall within the scope of CFIUS jurisdiction to review transactions resulting in foreign control of, or certain foreign investments in, a U.S. business. In 2020, CFIUS issued regulations regarding the scope of, and process and procedures relating to, national security review by CFIUS of certain transactions involving the purchase or lease by, or concession to, a foreign person of certain real estate in the United States. However, the new jurisdiction was limited to review of transactions involving certain military installations, real estate in certain geographic areas or ports, and real estate within close proximity (1 mile) or extended range (100 miles) of specified military installations or U.S. government facilities, subject to various exceptions. As a result, CFIUS did not acquire jurisdiction to review all foreign investments in real estate.

Proposed CFIUS rule

To expand CFIUS jurisdiction over real estate transactions, the committee issued a proposed rule that would amend the definition of “military installation” by adding Arizona, California, Iowa, North Dakota, South Dakota and Texas to the set of states listed in Section 802.227(m) of the regulation that covers military ranges “owned by the Navy or Air Force, or joint forces training centers.” Thus, if implemented, the proposed rule would increase the number of states listed in Section 802.227(m) from six to 13. In addition, the following eight sites in six states would be added to Part 2 of the List of Military Installations and Other U.S. Government Sites specified in Appendix A to the regulations:

• Air Force Plant 42 (Palmdale, California; this is a classified aircraft manufacturing facility about 60 miles east of downtown Los Angeles).
• Dyess AFB (Abilene, Texas; this base currently flies the B-1 bomber and will fly the new B-21 bomber).
• Ellsworth AFB (Box Elder, South Dakota; this base currently flies the B-1 bomber and will fly the new B-21 bomber aircraft).
• Grand Forks AFB (Grand Forks, North Dakota; this base flies the Global Hawk RQ-4 drone).
• Iowa National Guard Joint Force Headquarters (Des Moines, Iowa).
• Lackland AFB (San Antonio, Texas; the sole basic training facility for the Air Force).
• Laughlin AFB (Del Rio, Texas; the largest initial Air Force undergraduate pilot training base).
• Luke AFB (Glendale, Arizona; the Air Force’s advanced pilot training base for F-16s and F-35s).

As a result of these proposed additions, covered transactions involving real estate within 100 miles of these sites would become subject to CFIUS review if no exceptions apply. So, although CFIUS jurisdiction to review real estate transactions likely will increase, the proposed rule does not provide CFIUS with jurisdiction to review all foreign investments in U.S. real estate.

Comments on the proposed rule are due to CFIUS by June 5.

Congressional interest

This year also has seen a number of bills introduced in Congress that are designed to address perceived threats of foreign investments in U.S. real estate. This perceived threat is not new to Congress; in 1979, Congress enacted the Agricultural Foreign Investment Disclosure Act of 1978, which requires foreign persons to file notice with their nearest U.S. Department of Agriculture (USDA) office of any acquisition (and some leases) of agricultural lands (including timber, ranch and farmland), unless the land consists of less than 10 acres and generates less than $10,000 in gross annual profits. Commentators have expressed concern that this notice requirement is frequently ignored and enforcement is limited, at best.[1] The law authorizes penalties to be imposed on non-filers, but to our knowledge, penalties have rarely been imposed.[2]

This underreporting and lack of enforcement, together with press reports of recent transactions over which CFIUS did not have jurisdiction, have motivated members of Congress on both sides of the aisle to introduce or cosponsor bills designed to address perceived threats. Currently, there are 16 bills pending before Congress that would broaden the scope of CFIUS jurisdiction or prohibit or restrict certain foreign investments in U.S. real estate. The scope of these proposed bills varies, but key provisions would:

• Prohibit foreign ownership of U.S. agricultural lands by citizens of certain states (e.g., China, Russia, Iran).
• Prohibit Chinese Communist Party members from buying any U.S. land.
• Prohibit nationals of China (and other countries of concern) from buying/leasing U.S. agricultural lands and/or require CFIUS review of such transactions.
• Require CFIUS to review real estate transactions involving agricultural land or real estate near military installations (within 100 miles).
• Make the USDA a member of CFIUS.
• Amend USDA reporting requirements on foreign acquisition of U.S. agricultural land (including by increasing maximum penalties).

State legislation

State legislatures have also responded to the perceived threat. Currently, there are more than 20 states that prohibit or restrict in some way foreign ownership of U.S. real estate, and there is legislation currently pending before nearly 20 state legislatures to amend or enact prohibitions or restrictions on foreign ownership of real estate.[3]

Most recently, on May 8, the state of Florida enacted legislation that, among other things:

• Defines “foreign principal” to mean a government or its officials, a political party or its members, partnerships, associations, and businesses organized or having a principal place of business in a foreign country of concern, and any person who is domiciled in a foreign country of concern and is not a U.S. citizen or lawful permanent resident.
• Defines “foreign country of concern” to mean China, Russia, Iran, North Korea, the Venezuelan regime of Nicolás Maduro and Syria.
• Prohibits foreign principals from foreign countries of concern from purchasing or acquiring certain other rights in Florida agricultural land.
• Prohibits foreign principals from the same countries from purchasing or acquiring other rights in real property within 10 miles of a military installation or critical infrastructure facility, as defined.
• Requires foreign principals who acquire agricultural land within 10 miles of a military installation or critical infrastructure facility through enforcement of security interests or in connection with collection of debts to sell the land within three years.
• Provides an exception for a natural person who has a legal right to reside in the United States who is buying one single-family residence (up to 2 acres) that is more than 5 miles from a military installation or critical infrastructure facility.
• Allows persons from countries of concern who currently own real estate subject to restrictions to register their ownership of the land with the state (or face financial penalties for failure to report).
• Provides potential civil and criminal penalties for both foreign principals and U.S. parties to prohibited real estate transactions for failure to comply.
• Allows the state of Florida to seize and sell land acquired or retained in violation of the statute.

Next steps

Foreign persons contemplating U.S. real estate transactions should monitor the CFIUS proposed rule and bills pending in Congress and be aware of applicable requirements, both under federal law and in the state in which the land is located. The BakerHostetler National Security team will continue to monitor developments.

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