The Florida state legislature recently passed Florida Senate Bill 264 (SB 264) with Governor Ron DeSantis. This bill now imposes key restrictions on foreign nationals who attempt to purchase certain types of real estate if those individuals hail from specific countries, ranging from the People’s Republic of China to the Syrian Arab Republic and more.
Understanding the potential ramifications of Florida Senate Bill 264 is crucial for real estate professionals and the broader Florida real estate market, which has seen the foreign national buyer segment grow significantly in the past few years. In this article we provide an overview of SB 264 and key considerations for anyone involved in real estate dealings in Florida to be aware of moving forward.
Overview of Florida Senate Bill 264
In a nutshell, Florida Senate Bill 264 prohibits certain foreign principals from purchasing certain types of property throughout Florida. In addition, all foreign nationals must now complete an affidavit for real estate purchases that are permitted under the law — the completion of those affidavits will occur as part of the closing process.
Under SB 264, a “foreign principal” is any individual or entity associated with “foreign countries of concern.” These countries include:
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 Nicolas Maduro
The Syrian Arab Republic
As of July 1, 2023, foreign principals (or agents acting on behalf of these foreign principals) cannot purchase or own:
Agricultural land in Florida
Interest in any real property within 10 miles of state critical infrastructure or military installations
In addition to the above, SB 264 specifically prohibits the following individuals from owning any real estate property in Florida:
Chinese citizens who aren’t lawful permanent residents of the US or US citizens
Members of the Chinese Communist Party
Other Chinese political party members or officials
Chinese business organizations
There are a few exceptions to the above — such individuals can potentially purchase one residential property per person that isn’t on or within 5 miles of any military installation in Florida.
As you might expect, this bill has already made waves throughout the Florida real estate market!
Restrictions on Property Types and Locations
Let’s dive into the details. Specifically, SB 264 prohibits foreign principals from the above nations of concern from owning:
Agricultural land or properties
Any real estate within 10 miles of critical state infrastructure facilities or military facilities
Agricultural land or properties are easy to understand. Critical infrastructure facilities and military facilities are given broad definitions under the law, however, and include:
Electrical power plants
Chemical manufacturing plants and facilities
Water treatment plants
Telecommunications central switching offices
Notably, anyone who does sell property to prohibited individuals or entities is subject to punishment under the law.
Why has Gov. Ron DeSantis tried to prohibit individuals from certain foreign countries from owning property? It’s primarily due to a few key reasons:
The above-mentioned countries of concern are either officially or unofficially opponents of the United States in terms of foreign policy.
Many individuals from the above-mentioned countries of concern do not have "legitimate" interests in the property aside from investment profits (i.e., they don't intend to live in Florida permanently).
Understanding Critical Infrastructure Facilities
Critical infrastructure, put simply, is any facility, land, or other real estate interest/property that is deemed necessary for Florida/the United States to function properly. For example, an airport is considered a critical infrastructure facility since the state relies on it for economic and emergency procedures.
Similarly, a gas production plant or refinery might be needed for the state power grid and for a variety of other safety-related purposes. SB 264 prevents real estate investors or owners from selling property within 10 miles of these facilities or land parcels to foreign principals under any circumstances.
This might have long-lasting consequences for the broader Florida real estate market. These land parcels for real estate interests might now be developed by domestic investors and owners exclusively.
Exceptions and Allowances in Florida Senate Bill 264
There are exceptions outlined in Florida Senate Bull 264, regarding restrictions on foreign ownership of land, this includes:
Ownership Before July 1, 2023: Existing foreign property owners can keep their land if acquired before July 1, 2023, but must register their ownership by specific deadlines.
De Minimis Indirect Interest: Foreign entities can own restricted property if their ownership in a publicly traded company owning the land is less than 5% or they have a noncontrolling interest in an entity controlled by a U.S. investment adviser.
Land or Real Property Acquired by Certain Means: Foreign entities can acquire restricted property through specific methods (e.g., inheritance, security interests) but must sell or divest it within three years.
Residential Real Property Exception: Certain foreign individuals can buy small residential properties in Florida if they meet criteria like having a valid U.S. visa and keeping the property away from military installations. Registration may apply.
These exceptions provide some flexibility within the framework of SB 264, allowing certain foreign individuals and entities to own or acquire land or real property in Florida under specific circumstances.
Legal Challenges and Controversies
Though SB 264 has received some support from American citizens and politicians, it has also been subjected to controversial discussions.
Shen v. Simpson
In May 2023, a constitutional challenge called Shen v. Simpson was launched against SB 264. It focuses on constitutional concerns raised by Chinese citizens and a real estate brokerage firm in Florida. They argue that SB 264 infringes upon their constitutional rights, including equal protection, due process, and the Supremacy Clause.
Let's breakdown each of the constitutional challenges referenced in the Shen v. Simpson case:
Equal Protection: Critics argue that SB 264 may unfairly target individuals and entities based on their country of origin, potentially violating equal protection under the law.
Due Process: Opponents claim that the law could deprive foreign owners of their property without adequate legal procedures, raising due process concerns.
Supremacy Clause: There are concerns that SB 264 may conflict with federal laws, as the Supremacy Clause establishes that federal law takes precedence over state law.
Fair Housing Act: Some argue that the restrictions might violate the Fair Housing Act by being discriminatory in housing transactions.
At the time of writing, the Shen v Simpson case is still in litigation. In August, a federal district court judge in Florida denied the Plaintiff's request for a preliminary injunction, which means that the law is in effect while the litigation is pending. Thus, even though the Plaintiff's challenge to the constitutionality of the law is active in lawsuit, the law is in full effect unless a court strikes down the law.
Compliance Tips for Real Estate Professionals Navigating SB 264
It is advisable for realtors, mortgage brokers, and their clients to consult with their attorneys regarding Senate Bill 264 and its potential implications. Given the complexity of the law and the legal challenges surrounding it, seeking legal advice can help realtors and clients navigate the regulatory landscape effectively, understand their rights and responsibilities, and make informed decisions related to real estate transactions in Florida.
Additional steps real estate professionals can take to stay ahead of Florida Senate Bill 264:
Review Existing Agreements: If you have existing agreements or contracts with foreign national clients, review them to ensure compliance with SB 264 and any other relevant laws.
Stay Informed: Keep up-to-date with changes in state and federal laws related to foreign ownership of real estate. Given the evolving nature of this area, staying informed about legislative updates and legal developments is crucial.
Educate Your Clients: Ensure that your foreign national clients are aware of the legal restrictions and requirements under SB 264. Provide them with clear explanations of how the law may impact their real estate transactions.
Register as Needed: If your clients qualify for exceptions or fall under the registration requirements of SB 264, ensure that they complete the necessary registrations with the relevant state departments within the specified timeframes.
Stay Adaptable: Recognize that the legal landscape may continue to evolve. Stay adaptable and be prepared to adjust your strategies and approaches as new developments arise.
Wrapping It Up
In conclusion, Senate Bill 264 may bring about significant changes in the state's real estate landscape. Foreign investment patterns could shift, leading to potential price and demand fluctuations in affected property categories. Legal challenges and regulatory scrutiny could introduce uncertainties, while regions with higher foreign investment concentrations may feel more pronounced effects.
To navigate this evolving landscape, real estate professionals may need to adapt their services and provide guidance to foreign clients. Continued interest in residential real estate remains, and the bill's long-term impact may depend on legal developments, investor responses, and potential amendments to the legislation. Staying informed about these factors will be crucial for all stakeholders in Florida's real estate market.