The Florida Department of Commerce (Department) on Sept. 20, 2023, published proposed rules interpreting Florida's law limiting "foreign principals" from "foreign countries of concern" – China, Russia, Iran, North Korea, Cuba, Venezuela and Syria – from directly or indirectly owning, having a controlling interest in or acquiring by purchase, grant, devise or descent any interest in real property near military installations and critical infrastructure facilities in Florida. The public may now comment on the rules before they become final.

Background

A "de minimis indirect interest" in Florida real property is an exception to the general rule prohibiting ownership. The proposed Rule 73C-60.001, interpreting § 692.203, Fla. Stat., defines a "de minimis indirect interest" to include "[a]ny passive ownership interest of a foreign principal in an entity, provided that the foreign principal does not possess, by virtue of that ownership interest, or otherwise, the power to direct or cause the direction of the management or policies of the entity with respect to the interest in real property." R. 73C-60.001(4)(b), F.A.C.

The definition also clarifies any interest is exempt that is the result of the foreign principal's ownership of either: 1) registered equities in a publicly traded company owning the land and such ownership interest is 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 2) an interest that is not a controlling interest in an entity controlled by a company that is both registered with the U.S. Securities and Exchange Commission (SEC) as an investment adviser under the Investment Advisers Act of 1940 and is not a foreign entity. R. 73C-6.001(4)(a), F.A.C.

"Interest in real property" is defined as "all or part of an equitable or legal title to the real property and does not include a lease." R. 73C-60.001(10), F.A.C. Similarly, the definition of "controlling interest in real property" is defined as "any interest other than a lease which gives the foreign principal both of the following rights, whether or not the rights are exercised or shared concurrently with any other person, and whether or not the underlying real property is subject to an easement or other encumbrance: (a) the right to improve or develop the real property; and (b) the right to attach fixed or immovable structure or objects to the real property." R. 73C-60.001(3), F.A.C.

Direct and indirect ownership is regulated by § 692.203, Fla. Stat. The proposed rule would define "directly own" to mean the "foreign principal holds equitable or legal title to the real property in their own name." R. 73C-60.001(6), F.A.C. "Indirectly own" would mean "the foreign principal has an interest in an entity that has equitable or legal title to the real property; or the foreign principal has an interest in the real property, but the equitable or legal title to the real property is held by another entity or individual." R. 73C-60.001(9), F.A.C.

Restricted foreign principals include by statute "[a]ny person who is domiciled in a foreign country of concern and is not a citizen or lawful permanent resident of the United States." § 692.201(4)(d), Fla. Stat. The proposed rule defines "domicile" as "the place where the individual is physically present and intends to remain permanently or indefinitely." R. 73C-60.001(7), F.A.C. Furthermore, foreign principals are defined in the proposed rule so as to exclude "[i]ndividuals approved by the federal government to participate in the EB-5 Program." R. 73C-60.001(8), F.A.C.

Section 692.201(2) states that a foreign principal that directly or indirectly owns or acquires any interest in real property on or within 10 miles of any military installation or critical infrastructure facility before July 1, 2023, may continue to own it. The proposed rule clarifies that it is not necessary for the person to have taken title to the property beforehand. It states that a foreign principal that executed a contract for the purchase of real property in Florida before July 1, 2023, may own or acquire the real property that is the subject of the contract on or after July 1, 2023, provided the property is registered with the Department. R. 73C-60.002, F.A.C.

Registration requirements apply by statute to persons who fit within an exception enabling them to buy a residential property no closer than five miles from a military installation or critical infrastructure facilities. § 692.203(3)(a), Fla. Stat. The proposed rule confirms this and adds that a foreign principal who acquires real property within the 10-mile zone by devise or descent, through the enforcement of security interests or through the collection of debts must also register. R. 783C-60.003(2)-(4), F.A.C. By statute, the person must divest the real property within three years. § 692.203(5), Fla. Stat. A fine of $1,000 per day applies for failure to register by the deadline.

The registration requirement will not apply with respect to any de minimis indirect interest. R. 783C-60.003(8), F.A.C. Updated registrations are required when one or more of the following occurs: 1) the foreign principal sold the real property, 2) the foreign principal no longer owns the real property, 3) the foreign principal's real property is no longer within 10 miles of any military installation or critical infrastructure facility in Florida, 4) the foreign principal no longer has any interest in the real property or 5) the foreign principal no longer meets the definition of a foreign principal. R. 783C-60.003(7), F.A.C. The failure to file the update is not subject to penalties. Id.

The rule will adopt registration forms and anticipates development of a website that will reveal the locations of military installations and critical infrastructure facilities. R. 73C-60.003, F.A.C. The proposed rule would also create a rebuttable presumption that a seller of real property or closing agent who relies on and maintains the affidavit required by § 692.203(6), Fla. Stat., at the time of purchase did not have actual knowledge that the real estate transaction violated § 692.203, Fla. Stat. R. 73C-60.007, F.A.C.

Next Steps

Any person who wishes to request a hearing, provide information regarding a statement of estimated regulatory costs or provide a proposal for a lower cost regulatory alternative has until Oct. 11, 2023, to do so. Meanwhile, the Department may be expected to publish additional draft rules pertinent to Section 692.204's broader limitation on certain persons associated with China directly or indirectly owning, having a controlling interest in or acquiring by purchase, grant, devise or descent any interest, except a de minimis indirect interest, in real property in Florida.

Rulemaking by the Florida Department of Agriculture and Consumer Services interpreting § 692.202, Fla. Stat., is also expected. Please let the author know if you need assistance with rule interpretation or wish to participate in the rule development process.