Plaintiffs Win – To A Degree – in Decision Regarding Florida Foreign-Ownership Law
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A recent Circuit Court decision in Florida reflects the growing tendency of U.S. states to restrict foreign ownership of real estate.
The U.S. Court of Appeals for the 11th Circuit has partially granted the plaintiffs’ motion for an injunction pending appeal in Shen v. Simpson.
The federal suit challenges the new law in Florida that restricts certain individuals from China and other “foreign countries of concern” from owning real property in the state.
The Court determined that the plaintiffs/appellants are likely to succeed on their claim that the Florida law, SB 264 (“Interests of Foreign Countries”), is preempted by federal law – particularly the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which expands the jurisdiction of the Committee on Foreign Investment in the United States to address national security concerns over foreign exploitation of investment structures.
The challenged Florida law became effective July 1 and restricts land purchases by any “[f]oreign principal,” which it defines to include anyone “who is domiciled in a foreign country of concern and is not a citizen or lawful permanent resident of the United States.” It specifies the countries “of concern” as China, Russia, Iran, North Korea and others. A section of the law includes a grandfather provision for foreign principals who owned covered property before the law took effect.
Only two
Four Chinese citizens living in Florida, along with a brokerage that does business with Chinese citizens, sued to challenge the new law, contending it violates the 14th Amendment’s Equal Protection and Due Process Clauses, the Fair Housing Act and the Supremacy Clause. Defendants are Florida’s Agriculture Commissioner, Economic Opportunity Secretary and Real Estate Commission Chair.
The Court granted the motion only as to two of the plaintiffs/appellants, Yifan Shen and Zhiming Xu, primarily because the two had pending real estate transactions when SB 264 became effective and have “the most imminent risk of irreparable harm in the absence of a stay.” The Court denied the motion for a preliminary injunction as to the other plaintiffs/appellants.
In a separate concurring opinion, the judge added that the precedent set by, among other cases, 1923’s Terrace v. Thompson involving a Japanese citizen in the state of Washington and that helped determine that American states can deny aliens the right to own land within its borders, has been called into question by more recent U.S. Supreme Court decisions.
The 11th Circuit decision supporting some plaintiffs in such a case and deciding against others may do little to eventually clarify whether Florida’s new anti-alien law stands. The 11th Circuit Court is slated to hear oral appeal arguments in April.
Similar laws in other states
No American states absolutely prohibit foreign ownership of all types of land, but about half do forbid or limit nonresident aliens, foreign business entities or foreign governments from acquiring or owning an interest in private agricultural land within the given state. (The National Agricultural Law Center maintains a list of those states.)
Some states, such as Arizona, Hawaii, Idaho and Oregon have laws that prohibit foreign ownership of public real estate and farmland; only Oregon specifically restricts foreign individuals from purchasing public lands within the state, according to the NALC.
- In its recent report “State Regulation of Foreign Ownership of U.S. Land: January to June 2023,” the Congressional Research Service says, “State and federal lawmakers have expressed interest in legislative options to address the potential national security and economic implications of foreign ownership of U.S. land. During the first six months of 2023, at least 15 states enacted legislation regulating foreign ownership of real property.”
- They were Alabama, Arkansas, Florida, Idaho, Indiana, Louisiana, Mississippi, Montana, North Dakota, Oklahoma, South Dakota, Tennessee, Utah, West Virginia and Virginia enacted legislation regulating foreign ownership of U.S. land. Lawmakers introduced bills in more than 20 other states that would regulate or restrict foreign ownership of real property.
- Some states enacted information-gathering laws that mandate disclosure of or studies on foreign ownership of U.S. land, the report adds. Others’ laws directly prohibit certain transactions and may require divestiture of foreign-owned land.
Some restrictions apply only to agricultural land, others to land near military installations or critical infrastructure, and others to all real property within the state.
Some seek to regulate real property transactions with individuals and entities from a list of named countries – but others aim to govern purchases by all non-U.S. citizens. A third set addresses purchases by individuals and entities from countries identified on lists maintained under federal law, such as the International Traffic in Arms Regulations; the foreign adversaries list generated under Executive Order; sanctions lists maintained by the U.S. Department of the Treasury; or countries of particular concern designated by the U.S. Secretary of State.
Federal law
Some U.S. laws impose restrictions and requirements applicable to foreign investors in certain cases.
The Committee on Foreign Investment in the U.S. (CFIUS), for instance, oversees enforcement of laws that allow blocking certain foreign investment transactions where they might impact American national security. Since September 2001, the federal government has also regulated investment in the U.S. through disclosure and other laws designed to identify terrorist organizations and individuals (aka the “Patriot Act”).
Other laws and regulations that may affect foreign ownership are reporting requirements of the Bureau of Economic Analysis of the U.S. Department of Commerce; the Foreign Investment in Real Property Tax Act; anti-trust and competition laws; export control rules and regulations; and immigration and tax laws.
Ever-escalating global tensions and sometimes strong partisanship of American states’ leadership looks to fuel foreign-ownership restrictions in the U.S. in the future.
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About the Author
Alicea Castellanos is the CEO and Founder of Global Taxes LLC. Alicea provides personalized U.S. tax advisory and compliance services to high-net-worth families and their advisors.
Alicea has more than 20 years of experience. Prior to forming Global Taxes, Alicea founded and oversaw operations at a boutique tax firm, worked at a prestigious global law firm and CPA firm.
Alicea specializes in U.S. tax planning and compliance for non-U.S. families with global wealth and asset protection structures which include non-U.S. trusts, estates and foundations that have a U.S. connection.
Alicea also specializes in foreign investment in U.S. real estate property, and other U.S. assets, pre-immigration tax planning, U.S. expatriation matters, U.S. persons in receipt of foreign gifts and inheritances, foreign accounts and assets compliance, offshore voluntary disclosures/tax amnesties, FATCA registration, and foreign companies wanting to do business in the U.S.
Alicea is fluent in Spanish and has a working knowledge of Portuguese.
Alicea is an active member of the Society of Trusts & Estates Practitioners (STEP), the New York State Society of Certified Public Accountants (NYSSCPAs), the American Institute of Certified Public Accountants (AICPA), the International Fiscal Association (IFA), a member of Clarkson Hyde Global, a world-wide association of accountants, auditors, tax specialists and business advisors and the Global Referral Network (GRN).
Distinctly, in 2020, Alicea was awarded with a prestigious NYSSCPA Forty Under 40 Award. She was selected as someone that has notable skills and is visibly making a difference in the accounting profession.
In 2021 and 2022, Alicea was the Gold and Silver Winner, respectively, of Citywealth’s Powerwomen Awards in the category USA – Woman of the Year – Business Growth (Boutique). In 2023, she continued her winning streak by receiving the Gold award for Company of the Year Female Leadership (Boutique) and the Silver award for Accountancy Firm of the Year at the Magic Circle Awards. Furthermore, Alicea has consistently secured her position in the Global Elite Directory for four consecutive years, being recognized as a Private Client Global Elite Advisor and is currently listed for 2024 as a Non-Legal Adviser. This exclusive directory annually highlights the world’s elite lawyers and outstanding wealth advisors serving ultra-high net-worth clients.
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