This article originally appeared in the Daily Business Review on May 24, 2023, and was written by Fabio Giallanza.
On May 8, Gov. Ron DeSantis signed Senate Bill 264 codified at Chapter 2023-33, Laws of Florida (the act) into law. This new legislation introduced, among other measures, new restrictions to the sale of Florida real estate to certain foreign entities and individuals. Attorneys, title companies, brokers as well as other players in the real estate industry need to familiarize themselves with this new legislation to ensure compliance and avoid possible penalties.
S.B. 264 added a new Part III titled “Conveyances to Foreign Entities” to the existing Chapter 692 of the Florida Statutes which deals with “Conveyances by or to Particular Entities.” The new Part III includes five new sections (Fla. Stat. Sections 692.201-692.205), the first of which is a definitions section.
The act, which becomes effective July 1, prohibits the purchase of certain Florida real estate by “foreign principals” of “foreign countries of concern”, namely “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.”’
“Foreign principals” are very broadly defined in Section 692.201 as the government of a foreign country of concern; a member of a political party of a foreign country of concern; any foreign entity incorporated in a foreign country of concern, and, with a catch-all definition, “any person who is domiciled in a foreign country of concern and is not a citizen or lawful permanent resident of the United States.” Entities incorporated by any of the foreign principals defined above are also deemed to be a foreign principal.
Prohibition on the Acquisition of Agricultural Land—Fla. Stat. Section 692.202
Foreign principals are barred from, directly or indirectly, acquiring agricultural land. The Senate analysis cites national security and food security concerns as the rationale for this ban. In each instance in which a transfer of agricultural land takes place, a buyer’s affidavit will be required in which the buyer will attest that it is not a foreign principal and it is otherwise in compliance with the new law. From a practitioner’s standpoint, it is important to note that § 692.202, expressly states that the failure to obtain the affidavit will not create a title defect or affect insurability. This is useful guidance when representing a purchaser who is acquiring land from a foreign principal as the act seems focused only on the buy-side of the transaction. Also, the closing agent is exempted from civil or criminal liability for the noncompliance, except in the case the closing agent had actual knowledge that the buyer is a foreign principal.
Foreign principals who owned agricultural land prior to the July 1 are allowed to continue owning such land, but they will not be allowed to acquire additional land and will have until July 1, 2024, to register with the Department of Agriculture and Consumer Services. Failure to register can result in a civil penalty of $1,000 per day of noncompliance. Additionally, agricultural land acquired in violation of the ban may result in forfeiture of the property to the state. Enforcement is delegated to the Department of Agriculture and Consumer Services which is empowered to file a lis pendens and petition the circuit court of applicable jurisdiction to enter an order of forfeiture. In case of forfeiture, the state acquires the property subject to the rights of any lienholders.
Prohibition on the Acquisition of Property Near Military Installations or Critical Infrastructure—Fla. Stat. Section 692.203
Foreign principals are also prohibited from acquiring property interests, when the property lies within 10 miles of a military installation or critical infrastructure facility. The concern here is that foreign principals may use the land to monitor activities at such military installations and study vulnerabilities of critical infrastructure.
A critical infrastructure facility is defined through a list of 10 items, including electrical power plants, water treatment facilities, seaports and airports. Foreign principals that own property interests within 10 miles of a military installation or critical infrastructure facility as of July 1 will have the obligation to register with the Department of Economic Opportunity. The deadline here is Dec. 31, and a report will be deemed late if filed after Jan. 31, 2024. The civil penalty for failure to register is, again, $1,000 per day, which the Department of Economic Opportunity can collect by placing a lien against the property.
The new Section 692.203 contains a limited residential property exemption. Foreign principals can acquire residential real property, up to two acres in size, if the foreign principal holds a U.S. visa and the residential real property is not located within five miles of a military installation.
What is striking is that this exemption does not carve out high-density residential areas. This will create significant impact in the city of Doral, for example, which is home to a large Venezuelan community (many of whom are here on a visa) as well as the U.S. Southern Command.
A de minimis exemption exists for the acquisition of equity interests of publicly traded companies, when the equity interest represents less than 5% of the registered securities of the publicly traded entity. The de minimis exemption, as drafted, would not cover the acquisition of an equity interest in a closely-held business when one of the business assets (albeit ancillary) is Florida real estate. Such an acquisition by a foreign principal, at present, would be barred. The de minimis exemption also applies to the ban on agricultural land purchases discussed above.
Property can be acquired by a foreign principal by descent or through the enforcement of liens, although for a limited time. There is a requirement for a foreign principal to divest within three years after the property is so acquired (this applies also for agricultural land). In the residential context, this could lead to troubling results, for example when minor children of a foreign principal inherits an interest in residential property located within five miles of an airport. The requirement of an affidavit of compliance upon the sale of property and the potential of forfeiture are also present in this section.
Prohibition on the Acquisition of Property by Chinese Concerns—Fla. Stat. Section 692.204
The new Section 692.204 follows the structure and content of the previously discussed sections, but it extends the ban to the acquisition of all real property located within the state of Florida to entities or individuals who are domiciled in the People’s Republic of China.
The act will come into effect on July 1 and is certain to impact the South Florida real estate market. The requirement to register properties already owned, with steep penalties for noncompliance, will generate significant discontent if the government takes an unforgiving approach for nonwillful violations. Also, the requirement to divest properties acquired by devise or descent could be challenged on constitutional, due process grounds.
In the coming months, we can certainly expect to hear more on the effects, intended or unintended, of this new law. In the meantime, professionals in the real estate industry should do their best to stay compliant with the new legislation.
Fabio Giallanza is a corporate and real estate attorney at Weiss Serota Helfman Cole + Bierman. He represents businesses and investors in the acquisition and financing of property, along with business transactions and corporate matters. Giallanza specializes in cross-border transactions involving clients based in the United States, Europe and Latin America.
Read the original article in the Daily Business Review here.