Texas Restricts Foreign Ownership Of Real Property

Houston, Tex. (October 9, 2025) - Effective September 1, 2025, certain foreign individuals and entities are no longer able to purchase or acquire an interest in real property in Texas. Governor Abott signed Senate Bill 17 into law on June 20, 2025, amending Chapter 5 of the Texas Property Code to add Subchapter H.

The new legislation targets governmental entities of and companies, organizations, and individuals from "designated countries," which Subchapter H defines as countries that the U.S. Director of National Intelligence identifies as posing a risk to United States national security, or additional countries that the governor designates after determining that the purchase or acquisition poses a risk to national security. Subchapter H initially designates China, Russia, Iran, and North Korea as posing such risk. "Companies" and "organizations" collectively include not only associations, corporations, partnerships, and limited liability companies, but real estate investment trusts, joint ventures, insurance companies, and non-profit organizations.

Subchapter H identifies prohibited companies and organizations as those that are headquartered in a designated country, directly or indirectly held or controlled by a designated country's government, owned or the majority of equity of which is held or controlled by prohibited individuals, or designated by the governor. The law also extends to entities that are owned or the majority of equity of which is held or controlled by one of the foregoing types of companies or organizations. Subchapter H names the following types of individuals as prohibited: those who are domiciled in a designated country (unless lawfully present and residing in the United States at the time of purchase or acquisition of a residential property), citizens of a designated country who are domiciled in a foreign country or who are unlawfully present in the United States, citizens of a foreign country who are acting as agents or on behalf of a designated country, or members of a designated country's ruling political party.

Such entities and individuals are precluded under the law from purchasing or otherwise acquiring an interest in real property that is located in Texas. Subchapter H defines "real property" broadly to include agricultural land and improvements thereon, commercial, industrial and residential properties, and water, groundwater, and mineral rights.

Subchapter H's restrictions do not apply to U.S. citizens and lawful residents and entities owned or controlled by such individuals (and no individuals otherwise prohibited by the law), and leasehold interests or improvements constructed on a leasehold if the duration is less than one year.

The legislation authorizes the attorney general to bring an in rem action against real property to enforce the law in a district court in the county where all or part of the real property is situated and to refer the matter to the appropriate law enforcement agency.

If the district court finds that real property subject to an action brought under Subchapter H was purchased or acquired in violation of the law, the court may order the divestment of the interest in the real property and appoint a receiver to divest the interest, terminate the lease, or otherwise dispose of the interest, and to manage and control the real property pending sale or other disposition. The court may also refer the matter to the appropriate prosecuting attorney for criminal prosecution of any appropriate criminal offense in connection with the transaction. The purchase or acquisition of an interest in violation of the law will not be void nor will it affect the validity or enforceability of the purchase contract or conveyance. The acquisition of a leasehold interest in violation of the law, however, will be void. Proceeds from the sale or other disposition will be applied first to satisfy any existing liens on the property and then to pay the reasonable enforcement costs incurred by the state, with the remaining proceeds remitted to the individual or entity that purchased or acquired the interest in real property in violation of the law.

Individuals who are found to have intentionally or knowingly violated Subchapter H may be criminally charged with a state jail felony, while entities that are found to have violated the law may be liable for a civil penalty equal to the greater of $250,000 or 50% of the market value of the subject interest in real property. Noticeably, Subchapter H does not impose any liability on the sellers or lessors of real property sold or leased in violation of the law.

S.B. 17 tasks the attorney general with promulgating rules for Subchapter H's implementation as soon as practicable after the effective date.

Broader Trends and Legal Challenges

This new law is part of a broader trend in Texas to crack down on foreign investment and ownership in the state due to expressed national security concerns. Texas is not the first state to restrict foreign ownership of real property. Florida and Arkansas, among other states, have passed laws similar to Subchapter H. Those laws have been challenged as unconstitutional on federal preemption grounds. The federal courts in both cases have issued preliminary injunctions while the cases are pending appeal. To read Lewis Brisbois' prior publications on the Florida case, see our July 5, 2023 Client Alert discussing the federal lawsuit and April 2, 2024 Client Alert discussing the appeal. Additionally, to read Lewis Brisbois' prior publication about the various states that have introduced or passed laws restricting foreign private investment in agricultural land, see our March 15, 2024 Client Alert.

Likewise, a class action lawsuit filed in the U.S. District Court for the Southern District of Texas recently challenged S.B. 17 on constitutional grounds, alleging federal preemption and equal protection violations. The District Court granted the Texas attorney general's motion to dismiss for lack of standing and denied as moot both the attorney general's motion to dismiss for failure to state a claim and the plaintiffs' motions seeking a preliminary injunction. The District Court also denied the plaintiffs' request for an injunction pending appeal. Most recently, the U.S. Court of Appeals for the Fifth Circuit granted a short temporary administrative stay on the statute as to the named plaintiffs only and denied the appellants' opposed emergency motion for injunction pending appeal. On September 16, 2025, a similar class action was filed in the U.S. District Court for the Western District of Texas. It is anticipated that the new Texas law will continue to face these types of legal challenges in the future.

This is not the first time that states have sought collectively to bar foreign nationals from owning domestic real property. Critics of the new law say that it echoes the alien land acts, which were a series of state laws passed in the late 19th and early 20th centuries restricting Asian and other immigrants from owning land or entering into long-term leases. In 1952, the U.S. Supreme Court ruled the laws unconstitutional in violation of the 14th Amendment's equal protection clause.

Key Takeaways

Subchapter H has potentially major consequences for existing foreign operations in Texas that lease or own real property. While the law does not apply retroactively to purchases or acquisitions occurring prior to September 1, 2025, it is unclear how it will apply to subsequent multi-year renewals of leases entered into prior to the effective date. Subchapter H also does not provide guidance as to what threshold of ownership constitutes a violation, thereby potentially impacting entities with passive foreign investors holding minority indirect ownership interests.

Subchapter H is broad in application, covering not only purchases but other means of acquiring real property, which could be construed to include acquisitions by gift, inheritance, or other transfers by law. The new law also applies to a wide range of entity types and to interests held by U.S. subsidiaries that are majority owned by entities or individuals designated under Subchapter H. Until the attorney general adopts rules that clarify Subchapter H's application and limitation, business entities that are potentially impacted by the new legislation should be prepared to conduct heightened due diligence and enter into with caution transactions involving Texas real estate.

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