On May 8, 2023, Florida Gov. Ron DeSantis signed into law Senate Bill 264: Interests of Foreign Countries (SB 264), effective July 1, 2023. The law may affect not only traditional real property owners and investors but also investors and potential acquirers of any business with operations in the state of Florida.
SB 264 prohibits the direct and indirect ownership, purchase, and sale of any interest in real property by government or political affiliates of, entities organized in, and natural persons domiciled in (collectively, “foreign principals”) China. In addition, SB 264 prohibits the direct and indirect ownership, purchase, and sale of agricultural land or land within 10 miles of critical infrastructure or military installations in Florida by foreign principals of China, Cuba, Iran, North Korea, Russia, Syria, and Venezuela (each a “country of concern”).
There are some limited exemptions to SB 264, but as drafted, such exemptions do not cover the purchase of interests in a privately held company by foreign principals or by private investment funds with foreign principals as limited partners. The limited exemptions are as follows:
- The purchase of certain de minimis indirect interests in a publicly traded company that owns real property in Florida
- The purchase of a small residential property in Florida by a natural person, provided that it is not within five miles of a military installation and that it is registered with the Florida Department of Economic Opportunity
- The acquisition of real property in Florida by any foreign principals of a country of concern by devise or descent, through the enforcement of security interests or through the collection of debts provided that, in each case, such person divests itself of such real property within three years and such interest is registered with the Florida Department of Economic Opportunity. This exemption indicates that a mortgage or other direct or indirect security interest in Florida real property held by a foreign principal of a country of concern is likely not a prohibited interest
- A foreign principal of a country of concern may continue to own a direct or indirect interest in real property purchased before July 1, 2023—but as drafted, it is unclear whether SB 264 requires such previously acquired interest to be registered with the Florida Department of Economic Opportunity
Violation of SB 264 may result in (1) the civil forfeiture of the property to the state of Florida and/or (2) criminal penalties for both buyer and seller. Criminal penalties for selling agricultural land or land near critical infrastructure or military installations in violation of SB 264 generally may result in up to 60 days in prison and a fine of up to $500 for both the buyer and seller. However, criminal penalties for selling any interest in real property to a foreign principal of China are more severe, resulting in up to five years in prison and a fine of up to $5,000 for the buyer and up to one year in prison and a fine of up to $1000 for the seller. For any real property interest that was purchased before July 1, 2023, there are also monetary penalties for failure to register said property interest by the January 1, 2024, deadline.
The drafting of SB 264 makes it possible for the law to extend far beyond direct investment in real estate and into the complex structure of private-equity transactions.
People and Funds Affected: Foreign principals of Cuba, Iran, North Korea, and Syria are already barred from engaging in Florida real estate transactions by existing federal economic sanctions administered by the US Treasury Department’s Office of Foreign Assets Control. As a result, SB 264 is most likely to affect ownership and investment by foreign principals of China, Russia, and Venezuela and by private investment funds with limited partners domiciled in these jurisdictions. In addition, the definition of foreign principals includes nationals of countries that are not a country of concern if they are domiciled in a country of concern.
Real Estate Direct and Indirect Investment: SB 264 will clearly affect direct purchases of real property in Florida by foreign principals. The greater impact, however, may be the impact on indirect investment through joint ventures, private investment funds, and similar vehicles. SB 264 does not define “indirect interest,” and there is no minimum threshold for ownership or control. As drafted, the de minimis exemption applies only to publicly traded companies. A private fund with any investor domiciled in a country of concern, or unable to collect such information from its investors, may need to consider forgoing investments in Florida real property. Another open question is whether SB 264’s reference to “any interest in real property” includes leases and other types of real property interests, which would further broaden the scope of the law.
M&A Transactions Involving Businesses with Florida Operations: SB 264 may have significant implications for M&A transactions (whether or not the acquisition of real estate is the primary objective), such as, for example, an acquisition of a business that owns or leases an office space in Florida. Private-equity buyers with investors from any foreign country of concern would be well advised to reach out to competent M&A and regulatory counsel to analyze the facts and circumstances of their investment in advance to avoid running afoul of the new statute.
Note that the true scope and impact of SB 264 may not be clear for some time. SB 264 requires that certain rules and regulations be promulgated to implement itself, but no such rules or regulations have been issued to date and there is currently no publicly available timeline on when they will be available. The plain language of the statute is the only source parties can currently look to for guidance.
Challenge to SB 264
On May 22, 2023, a lawsuit was filed in federal court alleging that SB 264 violates (1) equal protection under the Fourteenth Amendment, (2) procedural due process under the Fourteenth Amendment, (3) the Fair Housing Act, and (4) the Supremacy Clause of the US Constitution. The plaintiffs are represented by various legal organizations, including the American Civil Liberties Union and the Asian American Legal Defense and Education Fund. The first amended complaint was filed on June 5, 2023, requesting, among other things, an emergency preliminary injunction to enjoin the implementation of SB 264. The hearing on preliminary injunction is scheduled for July 18, 2023.