SB 264: Florida's New Law Restricting Foreign Ownership of Real Estate

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
Airports
Seaports
Chemical manufacturing plants and facilities
Water treatment plants
Gas plants
Refineries
Telecommunications central switching offices
Spaceport territories

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.

2024 Update: Landmark Decision

On February 1, 2024, the US Court of Appeals for the Eleventh Circuit Court (“Eleventh Circuit Court”) upheld Plaintiff's request for preliminary injunctive relief in Yifan Shen v. Commissioner, Florida Department of Agriculture, et al

In a significant legal development, the Eleventh Circuit Court handed down a landmark decision in the case of Yifan Shen. The court's ruling upholds the plaintiff's request for preliminary injunctive relief, marking a crucial step in this ongoing legal battle. This case has garnered attention for its potential impact on both individual rights and government regulations within the state of Florida and the real estate market in Florida.

Implications:

The implications of this decision extend beyond the specific details of Yifan Shen's case. Preliminary injunctive relief suggests that the court finds the Plaintiff’s arguments persuasive and believes there is a likelihood of success on the merits. This decision may impact the enforcement of certain regulations or actions taken by the Florida Department of Agriculture, setting a precedent for similar cases in the future.

Public Reaction:

As news of the Eleventh Circuit's decision circulates, legal experts, activists, and the general public are likely to weigh in on the implications of the case. The balance between individual rights and government authority is a perennial topic of discussion, and this ruling may fuel debates about the limits of regulatory power and the protection of citizens' rights.

Conclusion:

Yifan Shen v. Commissioner, Florida Department of Agriculture et. al, has taken a significant turn with the Eleventh Circuit's decision to uphold the Plaintiff’s request for preliminary injunctive relief. The legal community and the public at large will be closely monitoring the subsequent developments in this case, anticipating its potential impact on legal precedents and the delicate balance between individual freedoms and governmental oversight.

For now, Florida cannot enforce SB 264 against Plaintiffs’ Yifan Shen and Zhiming Xu. However, the State of Florida can enforce SB 264 against the remaining plaintiffs/appellants and everyone else in the public for all other real estate transactions in Florida. Despite this narrow ruling, the Court appeared to signal more skepticism with SB-264’s validity than Judge Winsor of the U.S. District Court of the Northern District of Florida.

The appeal is on an expedited track, with the Eleventh Circuit expected to hear oral arguments on the merits of the case in April. At which point, the court may decide whether expand the temporary restraining order.

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.
Explore Financing Options: Work closely with lenders who have experience in financing real estate transactions involving foreign nationals. They can help identify suitable financing options and navigate any additional requirements.
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

The Eleventh Circuit's recent decision highlights the complexities surrounding SB 264 and sets the stage for further legal scrutiny. With the appeal proceeding on an expedited track, upcoming oral arguments in April may lead to additional rulings regarding the temporary restraining order and broader enforcement of SB 264.

These developments underscore the evolving nature of regulatory frameworks and their impact on the dynamics of Florida's real estate market, prompting continued attention from legal experts and stakeholders alike.

Sources:

CS/CS/SB 264 — Interests of Foreign Countries | Florida Senate

Florida Sued Over SB 264 Restricting Foreign Investment | The Real Deal

affidavit | Wex | US Law | LII / Legal Information Institute

natural person | Wex | US Law | LII / Legal Information Institute