United States: Update On Florida Law Limiting Persons From "Foreign Countries Of Concern"

Highlights

• The U.S. Court of Appeals for the Eleventh Circuit will soon hear oral argument on the merits of the Florida law limiting persons from "foreign countries of concern" from owning, having a controlling interest in or acquiring an interest in certain Florida real property.
• Meanwhile, the court of appeals has enjoined the state from enforcing Senate Bill 264, which created Chapter 692, Florida Statutes (the Act), against two individual plaintiffs/appellants whose transactions were jeopardized.
• Two sets of regulations pertaining to agricultural land and land near military installations and critical infrastructure facilities are now final, but they do not match.
• Rulemaking interpreting the law relating to real property in general has still not begun, and legislation to amend the Act failed to pass during the 2024 regular legislative session.

Florida enacted Senate Bill (SB) 264 in May 2023, creating Chapter 692, Florida Statutes (the Act), to limit select persons from "foreign countries of concern" from owning, having a controlling interest in or acquiring an interest in Florida real property. The litigation filed on the heels of enactment has led to an injunction benefiting two individual appellants pending a decision on the merits. Meanwhile, differential rulemaking is final for two of three types of real property affected by the Act. Efforts to amend the law failed during Florida's 2024 regular legislative session.

Court Challenge

On Aug. 17, 2023, the U.S. District Court for the Northern District of Florida inShen v. Simpsondeclined to enjoin the Act on the grounds it permissibly classifies based on where an alien is domiciled rather than on the basis of race and national origin in violation of the Equal Protection Clause and Fair Housing Act. Furthermore, the court determined that terms such as "domicile" and "critical infrastructure facility" are adequately defined rather than void-for-vagueness. Last, the court ruled that the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) does not preempt the Act. In its "Statement of Interest" in support of the plaintiffs in the lawsuit, the United States did not argue preemption under FIRRMA.

The plaintiffs sought emergency appellate review. On Feb. 1, 2024, the U.S. Court of Appeals for the Eleventh Circuit granted in part the appellants' motion for an injunction pending appeal based on preemption under FIRRMA. The court of appeals considered controlling two cases that the district court distinguished, including one that preempted Massachusetts from restricting purchase of goods or services from companies that did business with Burma and another that preempted Florida from prohibiting award of public contracts in excess of $1 million to companies having business operations in Cuba. Concurring, Judge Nancy Abudu would also have found a violation of the Equal Protection Clause. In her estimation, the appellants have shown that the Act "was enacted for the specific purpose of targeting people of Chinese descent."

The court of appeals granted an injunction to two individual appellants whose pending transactions were jeopardized by the Act. As a necessary predicate, the court of appeals determined that the appellants had shown a substantial likelihood of success, whereas the district court had determined the opposite. One of the judges on the 3-0 panel (Judge Kevin Newsom) was appointed by former President Donald Trump. The appellants view these as favorable signs that the court of appeals will reverse the district court, but the merits panel could reach a different outcome. The court of appeals will hear oral argument on April 19, 2024. A request for rehearingen banc, stay and/or petition for certiorari could follow.

Rulemaking

Three types of real property are at issue in the Act: 1) agricultural land, 2) real property near military installations and critical infrastructure facilities, and 3) real property in general. The Florida Department of Agriculture and Consumer Services (DACS) is the agency most recently to complete rulemaking pertaining to agricultural land. Previously, the Florida Department of Commerce (DOC) completed rulemaking as it relates to real property near military installations and critical infrastructure facilities. DOC has not begun rulemaking as related to real property in general.

Rulemaking has resulted in different definitions for the same terms applied to different kinds of real property. For example, DOC included in its rule pertaining to real property near military installations and critical infrastructure facilities this definition of a permissible "de minimis indirect interest" to wit: "Any passive ownership interest of a foreign principal in an entity, provided that the foreign principal does not possess, by virtue of that ownership interest or otherwise, the power to direct or cause the direction of the management or policies of the entity with respect to the interest in real property." R. 73C-60.001(4)(b), F.A.C.

Besides the passive investor exception, DOC has explicitly carved out a lease from the definition of an "interest" in real property. R. 73C-60.001(3), (10), F.A.C. Furthermore, DOC excluded from the definition of a "foreign principal," "[i]ndividuals approved by the federal government to participate in the EB-5 Program." R. 73C-60.001(8), F.A.C.

DACS did not include any of these terms in its rules pertaining to agricultural land. DACS provides more detail than DOC in its rules with respect only to the definition of a prohibited "controlling interest" in real property. DACS and DOC agree that such an interest gives a foreign principal the following rights, "whether or not the rights are exercised or shared concurrently with any other person, and whether or not the underlying real property is subject to an easement or other encumbrance": a) the right to improve or develop the real property and b) the right to attach fixed or immovable structures or objects to the real property. R. 73C-60.001(3), F.A.C. DACS adds the right: c) to physically access the agricultural land and d) to exclude others from physically accessing the agricultural land. R. 5J-27.001(3), F.A.C. An interest conferring rights a) and b) under the DOC rule or any two or more rights a) through d) under the DACS rule amounts to a forbidden controlling interest in real property.

DOC has not commenced rulemaking for real property in general, although it would be surprising if DOC adopted different rules than for real property near military installations and critical infrastructure facilities unless DOC plans to update all of its rules interpreting the Act.

Legislation

During Florida's 2024 regular legislative session, SB 814 proposed to amend the Act with another definition of "controlling interest," emphasizing "the power to control access to or the use or management of a parcel of real property" and incorporating a presumption that an ownership interest of 25 percent or more amounted to a controlling interest, clarifying the meaning of a "de minimis indirect interest," providing that a non-tourism visa holder was not a prohibited "foreign principal," and expressly permitting development and sale of residential units.

These amendments failed after Gov. Ron DeSantis announced opposition to them. For SB 814, the Senate ultimately substituted House Bill (HB) 799 to clarify that an easement, servitude or other interest in real property created by an owner of real property before the effective date of the bill is valid unless invalidated and states that an owner may create these interests in the owner's real property notwithstanding that the owner owns all of the affected real property. HB 799 has not yet been signed into law. The next regular legislative session will not begin until March 4, 2025.

More to Come

Holland & Knight will continue to monitor developments related to the Act. Meanwhile, if you have questions about its interpretation or would like assistance with commenting on rulemaking, please contact the author or another member of theFlorida Government Advocacy Teamor Florida Real Estate Team.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.