US Court of Appeals for the 11th Circuit Enjoins Florida's Restrictions on Persons from Foreign Countries of Concern Acquiring Real Estate – But Only for Two Individual Plaintiffs

On February 1, 2024, the US Court of Appeals for the 11th Circuit granted an injunction, limited to two individual plaintiff/appellants, of a Florida law (Senate Bill 264, or SB 264) in effect since July 1, 2023, which prohibits certain foreign persons from directly or indirectly acquiring interests in certain real estate. Specifically, the Court held that those plaintiffs/appellants showed a substantial likelihood of success on their claim that the state statute is preempted by federal law, specifically 50 U.S.C. 4565, the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), and notably cited 31 C.F.R 802.701—the portion of the regulations that grant a safe harbor from federal national security based restrictions on foreign acquisitions of real estate, if approved by the Committee on Foreign Investment in the United States (“CFIUS”), or if CFIUS finds that a real estate transaction is not subject to CFIUS jurisdiction.    

SB 264 (in relevant parts) (1) prohibits foreign principals¹ of a foreign country of concern from owning, having a controlling interest in, or acquiring by purchase, grant, devise or descent: (i) agricultural land;² or (ii) real property on or within ten (10) miles of any military installation (or not within 5 miles of a military installation if the statutory exception applies³) or critical infrastructure facility, in Florida;⁴ and (2) prohibits persons or entities from the People’s Republic of China from directly or indirectly owning, having a controlling interest in, or acquiring by purchase, grant, devise, or descent any interests, except a de minimis indirect interest, in real property in Florida.⁵

“Foreign countries of concern” are defined as 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, or the Syrian Arab Republic.  

The Court noted that a preliminary injunction is not granted as a “matter of right,” and found that extraordinary relief was warranted for only two of the four plaintiff/appellants who, because of their recent and pending transactions, faced the most imminent risk of irreparable harm in the absence of a stay. The Court justified limiting the injunction to these two plaintiff/appellants, and thus denying the request as to the other plaintiffs, because of the accelerated pace of proceedings, including oral arguments before the merits panel scheduled for April. 

SB 264, as enacted, prohibits a broad sweep of transactions. Below is a more detailed description of the statute, and the regulations that Florida has implemented thus far in connection with registration requirements.  

“Controlling Interests” is broadly defined as “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% or more of the voting interests of the company or is entitled to 25% or more of its profits is presumed to possess a controlling interest.” A person or entity (or foreign principal, as applicable) has a de minimis indirect interest if any ownership is the result of the person or entity’s (or foreign principal’s) ownership of registered equities in a publicly traded company owning the land⁶ and if the person or entity’s (or foreign principal’s) ownership interest in the company is either: (a) less than 5% of any class of registered equities or less than 5% in the aggregate in multiple classes of registered equities; or (b) a noncontrolling interest in an entity controlled by a company that is both registered with the United States Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended, and is not a foreign entity. (Fla. Stat. §§  692.201-.205).

Registration Requirements and Penalties: 

Penalties:

Failure to file the required registration by January 31, 2024, for property acquired before July 1, 2023, may result in: 

• a civil penalty of $1,000 for each day that the registration is late; 
• a lien against any unregistered real property for the unpaid balance of any penalties assessed; and/or
• potential forfeiture to the: 
  • State of Florida by way of a civil action initiated by the Department of Agriculture and Consumer Services with respect to agricultural land, or
  • Department of Commerce with respect to military installations, critical infrastructure, or land owned by a foreign principal associated with the People’s Republic of China.

New Regulations Adopted:

Military Installations and Critical Infrastructure: 

On December 15, 2023, the Florida Department of Commerce certified final regulations interpreting section 692.203, F.S., the law applicable to military installations and critical infrastructure. Below are highlights of the rules promulgated by the DOC. Again, these relate to the law applicable to military installations and critical infrastructure, and not to the law applicable to agricultural land or to the ownership of Florida real property pertaining to persons or entities from the People’s Republic of China.

-R. 73C-60.001(8), F.A.C.: Individuals approved by the federal government to participate in the EB-5 Program are not prohibited foreign persons. Under the EB-5 Program, investors (and their spouses and unmarried children under 21) are eligible to apply for lawful permanent residence (i.e., become a Green Card holder) if they: (i) make the necessary investment in a commercial enterprise in the United States; and (ii) plan to create or preserve 10 permanent full-time jobs for qualified US workers.

-R. 73C-60.001(3), (10), F.A.C.: This rule provides that a lease is not an interest in real property.

-R. 73C-60.001(3), F.A.C.: Similar to the proposed rule with respect to agricultural land, the rule narrows the definition of “controlling interest” to an interest giving the prohibited person the “right to improve or develop the real property” and “to attach fixed or immovable structures or objects.”

-R. 73C-60.001(4)(b), F.A.C: The rule interprets the “de minimis indirect interest” exception to select foreign persons owning Florida real property. The rule extends the exception 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.” 

New Regulations Proposed:

Agricultural Land: 

The Florida Department of Agriculture and Consumer Services has not yet created rules concerning interests in agricultural land, but proposed rules suggest the Department will provide further clarity on the definition of “controlling interest in agricultural land.” The proposed rule narrows the definition to “any interest which gives the foreign principal two or more of the following rights, whether or not the rights are exercised or shared concurrently with any other person, and whether or not the underlying agricultural land is subject to an easement or other encumbrance:

(a) To physically access the agricultural land;

(b) To exclude others from physically accessing the agricultural land;

(c) To improve or develop the agricultural land; or

(d) To attach fixed or immovable structures or objects to the agricultural land.” (See R. 5J-27.001 et seq., F.A.C.)

The Law’s Implication for People’s Republic of China: 

The law as it relates to the ownership of Florida real property pertaining to persons or entities from the People’s Republic of China is not yet the subject of any rulemaking by the Florida Department of Commerce. Consequently, it is unclear what regulations with respect to Chinese ownership might look like. 

¹ SB 264 defines “foreign principal” to mean: 

(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 the laws of or having its principal place of business in a foreign country of concern, or a subsidiary of such entity; or [sic] (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. [sic] (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 this state.

With subsection (e), above, it is unclear whether the legislature intended to capture entities in which multiple foreign principals hold an interest, with those interests aggregated to determine whether the entity is a foreign principal.

² This would seemingly include the purchase of agricultural land with the intent to rezone some or all of it to a non-agricultural use. 

³ The statutory exception permits “a foreign principal who is a natural person” to “purchase one residential real property that is up to 2 acres in size if all of the following apply: (a) The parcel is not on or within 5 miles of any military installation in this state. (b) The person has 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 such visa or documentation authorizes the person to be legally present within this state. (c) The purchase is in the name of the person who holds the visa or official documentation described in paragraph (b).”

⁴ Because there is no list of military installations or critical infrastructure facilities, and because the definition of critical infrastructure facilities is broad, it is difficult to ascertain whether a given property is subject to this law.

⁵ Any such person or entity (or foreign principal, as applicable) that acquired an interest in any such real property in Florida before July 1, 2023 may continue to own such interest, subject to a registration requirement as described below

⁶ This initial component narrowly tailors the de minimis indirect interest exception. 

⁷ These affidavits essentially ask that buyers attest to their compliance with the law; unfortunately, given the uncertainties noted in the previous footnotes, it may be difficult to positively assert compliance.