Category: Real Estate

Red Rover, Red Rover, Come on Over? Understanding Pet Policies in Community Associations

Many community associations have restrictions that limit and/or prohibit pets.
In general, as long as such restrictions are drafted clearly, the North Carolina Courts will uphold their enforcement; however, there are several factors community associations should consider when establishing and enforcing pet restrictions and policies.
What is a Pet?
The North Carolina Court of Appeals has defined a household pet as a domesticated animal kept for the pleasure of or relating to a family or social unit who live together in the same dwelling. Accordingly, unless your community association’s pet policy contains a specific definition of “pet,” the broad definition adopted by the Court of Appeals controls. Therefore, in order for a community association to successfully limit pets to those animals traditionally considered as pets, such as dogs and cats, it may need to consider amending its pet policy to clearly define the term “pets.”
Types of Pet Policies – Restrictive Covenants v. Rules and Regulations
Pet policies are typically found in the community association’s declaration of covenants, conditions, and restrictions (“CC&Rs”) or in duly adopted rules and regulations. These policies often limit and/or prohibit the number, size, and types of pets that can be kept within the community.
Community associations that choose to implement pet policies through rules and regulations need to carefully consider the scope of authority for rules and regulations granted by the CC&Rs. Typically, CC&Rs only grant the authority to promulgate rules and regulations over the common area, not an individual owner’s lot or unit. For example, a pet policy adopted by the Board of Directors can require pets to be leashed when in the common area and require pet owners to properly collect and dispose of pet waste from the common area. Unless the CC&Rs grant the Board of Directors rule-making authority over lots, regulations that limit and/or prohibit the number, size, breed, and types of pets must be specifically granted by the CC&Rs.
Be Cautions with the Fair Housing Act
The Fair Housing Act, codified at 42 U.S.C. §§ 3601-3619 (“FHA”), prohibits housing providers from discriminating based on race, color, religion, sex, national origin, familial status, and disability. While the FHA does not define “housing providers,” it is well settled by federal courts that the definition of “housing provider” includes community associations.
Under the FHA, an assistance animal is not a pet but an animal that works, provides assistance, or performs tasks for the benefit of a person with a disability or that provides emotional support that alleviates one or more identified effects of a person’s disability. An assistance animal under the FHA may include any animal, such as a dog, cat, chicken, goat, bees, etc., and does not have to be specifically trained to provide any assistance. As a result, assistance animals include service animals and emotional support animals.
Consequently, a community association cannot enforce pet policies against assistance animals or emotional support animals. For a better understanding of the FHA’s impact on pet policies, please check out Home Owners Associations: Beware of the Fair Housing Act When Enforcing Pet Prohibitions and Restrictions.
Conclusion
Understanding how to properly adopt and implement pet policies is an important skill for all community associations; however, even more important is understanding those times when pet policies may or may not be enforced. Failing to understand these distinctions can lead to unintended consequences.

4 Lease Auction Tips for Landlords

During a retail bankruptcy, commercial landlords often face challenges when their tenants try to maximize the value of the bankrupt estate by holding lease auctions. Despite lease provisions that may restrict or prohibit a lease sale, courts have generally allowed retail debtors to conduct such sales. This is because lease clauses that attempt to limit or prohibit a lease sale are often disregarded as “ipso facto” clauses, which are unenforceable in bankruptcy.
Smart landlords have shifted their focus from trying to prohibit lease sales to influencing how these sales are conducted and what information the landlord may request for “adequate assurance” of future performance by the potential new tenant.
Here are four tips for the next time your lease is part of a lease auction.
Know What to Request as Adequate Assurance
Adequate assurance refers to a guarantee or proof provided to a landlord in a potential new lease demonstrating the ability to continue fulfilling future contractual obligations of the lease. Basically, it helps convince the landlord that this new tenant will meet the lease commitments.
At a minimum, landlords should request information from the exact proposed assignee of the lease, including:

The exact name of the entity which is going to be designated as the proposed assignee;
The proposed assignee’s and any guarantor’s tax returns and audited financial statements (or un-audited, if audited financials are not available) and any supplemental schedules for the last calendar or fiscal years;
If there was a guarantor on the original lease, then identify a guarantor on this lease;
The number of other retail stores the proposed assignee operates and all trade names that the proposed assignee uses;
A statement setting forth the proposed assignee’s intended use of the premises;
The proposed assignee’s business plans, including sales and cash flow projections; and
Any financial projections, calculations, and/or financial pro-formas prepared in contemplation of purchasing the

Demand Payment of Cure Costs
As a function of any assignment, a landlord should demand that they be brought current with all liabilities, payments, and other covenants. Sometimes an assignee may request a waiver of cure costs. This is a business decision for the landlord. However, the landlord should not feel like it can’t say no. Sometimes, a request to waive these costs is just another attempt to sweeten a deal. Meaning the potential tenant may still assume the lease even if you say no.
Consider Bidding on Your Own Lease
Sometimes, a landlord may want to control the space for its own financial reasons. For instance, potential new tenant, whom the landlord really wants in the center, may approach the landlord to lease the space. Or, the landlord may be looking to sell the center.  In both instances, having control of the space is essential. However, the Bankruptcy Code provides a debtor the right to continue the lease unless it is rejected or sold. The debtor has up to 210 days to assume or reject the lease. So waiting the debtor out may not be a viable option. As such, it may be advantageous for a landlord to buy back its own lease to ensure certainty.
If this is the case, it’s important to assert your rights to credit bid, when the Debtor files the initial motion to sell leases. Your credit bid may allow you to assert all prepetition claims, as well as avoid placing a deposit, as is common with new bidders. Further, you may want to attend the auction but not bid. Generally, if a landlord asserts this right during the bidding procedures motion process, the debtor will allow them to attend. But again, it needs to be asserted before the order is entered. Also, if the lease is not listed to be sold in the initial motion, nothing stops a landlord from reaching out to the debtor to make an offer to buy back the lease.
Review Your Lease for Restrictions
Lease assignments during bankruptcy can be contentious. Landlords may object to the assignment of leases to new tenants, but these objections are often overruled unless the landlord can demonstrate that the new tenant would disrupt the tenant mix and balance of the shopping center. For instance, is there a lease restriction that would violate another lease? If so, you want to argue that point now.
Commercial landlords may have to navigate the complexities of bankruptcy law, which often favors the debtor’s ability to assign leases. However, landlords can still seek to impose reasonable restrictions on the conduct of auctions and assert their lease rights.
If you are a landlord or trade creditor in a retail bankruptcy, it is vital to know your rights now. Stark & Stark’s Shopping Center and Retail Development Group can help. Our bankruptcy attorneys regularly represent landlords throughout the country, including the Eastern District of Missouri, District of New Jersey, Southern District of New York, District of Delaware, District of Minnesota and the Western and Eastern Districts of Pennsylvania regarding a variety of issues. Most recently, our Group has represented landlords and trade creditors in the Party City, Big Lots, Tijuana Flats, Rite Aid, Blink Fitness, Express, JOANN’s and Sports Authority chapter 11 bankruptcy cases.

Adverse Possession: Policing Your Property Boundaries – Owners Beware

Retail, commercial, and industrial property owners need to be diligent about policing their property boundary lines to avoid losing valuable property rights to an encroaching neighbor. The doctrine of adverse possession opens the door for an encroaching neighbor to make a claim of ownership of a neighbor’s property under certain circumstances.
Basically, if the neighbor occupies all or part of the property for a minimum time period ranging from 5 years to 60 years, depending on the state where the property is located, they can claim adverse possession. What can a property owner do to protect valuable property rights from a land-grabbing neighbor? First, let’s explain the legal theory behind adverse possession.
What is Adverse Possession?
By way of background, adverse possession is a legal doctrine that allows someone (known as a claimant) to claim ownership of another person’s land if the claimant’s use of the land is open, notorious, exclusive, and continuous for a period of time designated by the legislature of the state where the property is located. For example, in New Jersey, the claimant’s use must be uninterrupted for 30 years, but the 30-year time period is expanded to 60 years for woodlands and uncultivated land.
The cause of action for adverse possession can be complicated and is beyond the scope of this article. However, all property owners need to understand this type of claim exists. Here’s a quick summary of what a property owner should know about adverse possession.
First, all property owners must exercise due diligence and adopt land management procedures. It is crucial to understand the exact boundary lines of your property, and the starting point is to review your property survey or deed to your property. Surveys can be hard to read depending on how old they are, so you may need to call the surveyor to ask questions or request an updated survey. As a fallback position, a tax map may help, but tax maps may contain errors.
Once you determine the boundary lines, perform a physical inspection to identify any encroachments or signs of trespass. For example:

Is your neighbor’s dumpster on your property?
Are trucks being parked on your property?
Is a fence 20 feet over the boundary line?
Is someone using part of your property as a driveway?

If you discover an encroachment or signs of a trespasser, it is crucial to determine the actor (the trespasser) so you know who to contact to demand they remove the encroachment or stop the trespass.
What to Do If You Locate an Encroachment or Trespasser?
Create an Agreement
First, you can enter into an agreement to make the encroachment or trespass consensual. By agreeing to your neighbor’s use, you remove a crucial element of adverse possession. By definition, when the use of real property is by consent, the use cannot be adverse or notorious.
Any agreement should be reduced to writing and signed by the parties, usually in the form of a lease, easement, or license agreement. Any lease, easement, or license agreement should also contain other customary and necessary terms. For example, the agreement should address maintenance obligations, restrictions on use, and when the agreement will terminate. Some agreements are limited to the present owners of the properties, others “run with the land” and benefit future owners. It is very important to have the agreement reviewed by a legal professional with experience in drafting and interpreting these types of agreements.
End the Encroachment or Trespassing
If you decide you do not want to enter into an agreement and would prefer the encroachment be removed or the trespasser to stop trespassing, you need to act quickly. Posting a “no trespassing” sign or sending a demand letter to remove the encroachment is a good start, but not enough in some states.
Erecting a fence or installing a gate is a very good response since it will interrupt the continuous nature of the trespass. If you need to remove vehicles, machinery, equipment, fences or structures from your property, you may need to seek the assistance of a court and obtain an order (1) declaring the rights of each party and (2) enjoining future trespasses. Many states, like New Jersey, do not favor self-help remedies, and taking action without court approval could be grounds for judicial intervention.
Calculating the adverse time period can be difficult, especially for a new property owner.
Many states allow a property owner to combine their time period of possession with that of a prior owner to establish the continuous possession requirement. This combination of the time periods is called “tacking.”
For example, if ABC Corporation has been using part of your property for 20 years and sells the land to XYZ Corporation which continues the use for an additional 10 years, XYZ Corporation can argue the adverse possession use has been continuous for 30 years. To prove or attack allegations of tacking, property owners often have to go back through their files, look for old photographs, or find witnesses who were around the area for a long time and can testify to the use or possession.

We Need to Keep a Real Estate Purchase in Australia Confidential. Can This Be Done?

Ours is an age of identity fraud, data breaches, public registers, and political and media interest in the ownership of Australian real estate. 
Take a moment to consider the real estate-related data that can be readily accessed through a land titles office and online property platforms or even purchased for a relatively modest sum.
While steps are being taken to put in place a framework for the creation of a register of the beneficial ownership of ASX-listed entities, Australia does not have a general register of information as to the beneficial ownership of land.
Unsurprisingly, there are many legitimate reasons why a buyer or seller of real estate in Australia may want to either keep a transaction, their identity or the key commercial terms private and confidential or to manage when this information becomes known. 
These reasons could include the following:

A risk that the identity of the buyer may inflate the seller’s price expectations.
A risk that the identity of the buyer may produce an adverse reaction from neighbours.
A plan to acquire multiple parcels of land, in the same location, from different entities where confidentiality is an imperative.
A desire to avoid a person’s financial capacity being subject to media scrutiny.
A desire to not be included in the various Australian and global lists of wealthy individuals and families for reasons of privacy or personal security.
A past history between the buyer and the seller that could make the transaction more difficult to complete.

There is no silver bullet or simple solution that will guarantee anonymity, but there are steps that can be taken to minimise the information that makes its way into the public domain. The suggestions below will not guarantee anonymity, but if a level of confidentiality or anonymity is required, then the below list will give you the best chance of achieving that objective.
Make Your Expectations Clear
It cannot be assumed that all parties to a transaction and advisors have the same objectives or priorities in relation to confidentiality. Communicate and emphasise your requirements. Be specific and provide examples of what can and cannot be done. 
Use Confidentiality Agreements
Confidentiality agreements at any early stage of discussions are an effective step to both securing confidentiality and setting expectations for the parties involved. To protect against unwanted disclosure, parties should clearly define the information or categories of information to be protected and the scope of each party’s nondisclosure obligations. Confidentiality obligations should be included in a terms sheet/heads of agreement (and expressed to be binding), even if the balance of the document is expressed to be nonbinding. 
Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd (as trustee for Jack Road Investments Unit Trust) [2019] VSCA 91 considered whether a signed letter constituted a binding contract for the sale of land. One of the relevant issues in this case was whether the confidentiality obligations outlined in a confidentiality deed poll were effective in requiring the parties to keep confidential information—specifically, the terms of the proposed land sale—until either a written agreement terminated the deed or the confidential information became generally available to the public. Ultimately, the court determined that the confidentiality obligations were part of ongoing negotiations, noting that the purpose of the confidentiality deed poll was to prevent a third-party bidder from learning the commercial terms of the transaction, particularly the price. 
Engage a Real Estate Agent to Act for the Buyer
The use of a buyer’s agent partly removes the buyer from the transaction. It becomes unnecessary for the buyer to engage directly with the seller or the selling agent.
Appoint an Agent to Enter into the Contract
A person (the agent) can enter into an agreement to acquire real estate on behalf of another person (the principal). For example, the buyer could be “Mr Smith as agent.” 
It is not essential that the agent discloses to the seller that the agent is acting on behalf of an undisclosed principal. However, caution is necessary to ensure that such arrangements do not contravene any warranties or representations made in the contract. 
There should be a separate written agreement between the principal and their agent in relation to the appointment to act as agent and the scope of the rights and obligations of the principal and the agent. This document is also needed to make clear to the revenue and taxing authorities the capacity in which the agent (named buyer) was acting.
When adopting an agent/principal structure, the identity of the principal becomes known when the transfer of land form is created, because the principal is named on the transfer form. This means the seller will come to know the identity of the actual buyer before completion. 
Duty advice must be taken when using an agency structure to ensure a “double duty” liability is not accidentally triggered. 
The Use of a Bare Trustee
A bare trust is an arrangement where one person (the trustee) holds assets, such as real estate, on behalf of another person (the beneficiary). The trustee has no interest in the real estate and must follow the directions of the beneficiary in relation to the assets of the trust and must transfer the real estate to the beneficiary when requested to do so or sell the real estate to a third party if directed by the beneficiary to do so. Because the trustee has no beneficial interest in the real estate, there is usually no duty on the transfer of the real estate from the trustee to the beneficiary. 
As explained by the High Court of Australia in CGU Insurance Limited v One.Tel Limited (in liq) [2010] HCA 26 at [36], the trustee of a bare trust has no active duties to perform other than those which exist by virtue of the office of the trustee, with the result that the property awaits transfer to the beneficiaries or awaits some other disposition at their discretion.1 
A bare trust can be a useful mechanism for ensuring privacy and maintaining the anonymity of the beneficiary. If real estate is purchased by a trustee of a bare trust, the identity of the beneficiary is not disclosed and does not become public. The bare trustee contracts to buy the real estate and takes title to the real estate at settlement/completion.
A bare trust structure is one arrangement by which a professional trustee, lawyer, accountant, real estate agent or other advisor may acquire real estate and hold that real estate (usually on a temporary basis) on behalf of another person.
Use of an AFSL or Custodian
An Australian Financial Services Licensee (AFSL) or a custodian structure may also provide useful mechanisms in maintaining the confidentiality of a real estate buyer’s identity. An AFSL is a license granted by the Australian Securities and Investments Commission that is necessary for any business dealing in financial products, including managed investment schemes. An AFSL holder may operate a managed investment scheme, which can involve holding property and making investment decisions on behalf of investors.
A custodian structure, on the other hand, involves appointing a custodian to hold legal title to a property on behalf of a managed investment scheme or other entity. The custodian’s primary role is to safeguard and administer the property, ensuring it is held separately from the custodian’s own assets and appropriately accounted for. This structure can be particularly useful for preserving the confidentiality of the real estate buyer’s identity, as the custodian holds the legal title while the beneficial ownership remains with the investors or the managed investment scheme.2 
The Name, Ownership or Structure of the Buyer
Simple matters such as the name of the buyer, the shareholder(s) and the directors can readily enable the buyer to be identified.
It can assist with the maintenance of confidentiality to use professional advisors as directors of an entity (either permanently or for a discrete period of time). 
Off-Market Transactions
On-market transactions are often associated with a significant sales and marketing campaign. These campaigns generate interest in both the real estate itself and the identity of the buyer. In contrast, off-market transactions are conducted with greater discretion and do not result in the creation of the same volumes of information, data and market interest as on market campaigns. 
Include a Confidentiality Obligation in the Transaction Documents
A confidentiality obligation in real estate transaction documents generally requires that certain information shared between the parties remain confidential and is not disclosed to third parties. Some of the pertinent questions which need to be addressed include the following:

Does the transaction document include an obligation to maintain confidentiality? 
What is the extent of the confidentiality obligation? 
Are the parties required to ensure that their respective advisors also maintain confidentiality? 
Are media announcements permitted? 
Does the wording of any media announcement need to be mutually agreed upon? 
Can the selling agent retain details of the transaction to use in valuation reports and comparable transactions analysis? 

It is not uncommon for high-value real estate transactions to be recorded using the “industry standard terms and conditions.” For example, in Western Australia the general conditions for the sale of land contain no obligations in relation to privacy, confidentiality or media statements. 
It is important to check that the transaction document expressly address confidentiality.
Back-to-Back Transactions and Inadvertent Disclosures
A back-to-back transaction arises where there are two sale and purchase contracts concerning the same property in place at about the same time, as follows:

One contract between the seller and Buyer 1 at a purchase price of AU$X.
A second contract between Buyer 1 (as seller) and Buyer 2 at a purchase price greater than AU$X.

Usually, the following is true:

The seller is unaware of the second contract.
Buyer 1 will be anxious to ensure that the seller does not become aware of the second contract.
If the seller becomes aware of the second contract, the seller may refuse to complete the first contract or renegotiate the price.

Care must be taken to ensure that the following occurs:

There is strict compliance with laws, including those in relation to misleading and deceptive conduct.
There is strict compliance with duties to government agencies.
Parties are properly briefed as to the transaction and the necessity of confidentiality.
Ordinary actions as part of the settlement process do not inadvertently breach confidentiality (subject to the first two bullet points above).
Due diligence by Buyer 2 may need to be limited and is undertaken in a discrete manner (subject to the first two bullet points above).

Timing for Lodgement of the Transfer of Land Form at the Land Titles Office
There is no general legal requirement to lodge the transfer of land form at the relevant land tiles office immediately following settlement/completion. Of course, there is usually a contractual obligation to do so. 
There are a number of sound legal reasons why a buyer should proceed to quickly lodge the transfer of land form at the relevant land tiles office.
But a buyer and seller can do the following:

Agree that the buyer has a longer period of time after settlement/completion within which to lodge the transfer of land form at the relevant land tiles office.
Take steps to protect the buyer’s position, given the purchase price has been paid, until the transfer of land form is lodged.

Until the transfer is registered, the change of ownership will not become public and the seller will still appear to be the owner of the property.
Name Redaction at the Land Titles Office
All Australia states operate a searchable public register of information in relation to real estate transactions and land ownership. 
For example, in Western Australia the Transfer of Land Act 1893 does not provide for the redaction of parts of registered instruments for commercial or other considerations. However, Landgate (the Western Australian land registry) does offer name suppression in limited circumstances. Name suppression is generally available only to people who can prove they are at risk of harm should their details be easily discoverable. Such individuals may include high-profile figures or high net-worth individuals who face security threats.
In New South Wales (NSW), the Real Property Act 1900 similarly does not allow for the automatic suppression of names from the land title register for privacy or commercial reasons. However, name suppression may be granted in specific circumstances, and NSW Land Registry Services may suppress personal information from its public registers in response to a direction from the Office of the Registrar General. Such circumstances would be limited to situations where an individual faces significant risk to personal well-being or safety. 
Understand the Personality of Your Counterparty
An agreement in relation to confidentiality is of limited value if the counterparty is unlikely to adhere to it. Knowledge of the counterparty can be a powerful tool to preserve your confidentiality. 
If you buy from an unsuitable seller or sell to an unsuitable buyer, agreements as to confidentiality and privacy obligations may be of limited value. Due diligence of the counterparty is a vital aspect of all land transactions.
How are Disputes to be Resolved?
Australian court processes are relatively public. Preserving confidentiality in the event of a dispute over a land sale and purchase agreement is more likely if the parties are required to resolve any disputes by confidential arbitration or confidential mediation followed by confidential arbitration. But for confidential arbitration to apply, a suitable clause needs to be included in the sale and purchase agreement. 
For example, in Inghams Enterprises Pty Ltd v Hannigan [2020] NSWCA 82, the dispute resolution clause in the deed required the parties to first attempt to resolve their dispute through confidential mediation. If mediation was abandoned, the matter would then be automatically referred to confidential arbitration. The arbitration was to take place at a location chosen to maintain confidentiality, and the decision of the arbitrator(s) was to be binding and specifically enforceable. 
Anti-Avoidance
In Australia, buyers of real estate have a raft of obligations to state and federal government agencies. These obligations must be strictly complied with, and the matters identified in this article are not a way of avoiding these obligations. For example, foreign investment approvals must be obtained when required and foreign ownership disclosures must still be made. 
Also, taxing and revenue authorities can share information.
The matters raised in this article are designed to assist with maintaining privacy and confidentiality to the extent possible. It is important to note however that the techniques outlined in this article may not always preserve confidentiality. 
1 Heydon & Leeming, Jacobs’ Law of Trusts in Australia (2006 ed) [3.15].
2 Trust Company of Australia Ltd v Commissioner of State Revenue [2003] HCA 23 at [97]-[98]; Spangaro v Corporate Investment Australia Funds Management Ltd [2003] FCA 1025 at [1]; Wellington Capital Ltd v Australian Securities and Investments Commission [2014] HCA 43 at [14].

Real Estate Beneficial Ownership Regulatory Alert: Florida Restricts Real Estate Ownership by Individuals and Entities From “Countries of Concern”

SUMMARY
On 17 August, a Florida judged denied a bid by four Chinese citizens and a real estate brokerage firm for summary judgment to block enforcement of Senate Bill 264. Effective 1 July 2023, Senate Bill 264 (codified under Fla. Stat., ch. 692, pt. III – Conveyances to Foreign Entities) (the Statute), prohibits the direct or indirect ownership of specific categories of real estate by “foreign principals” from a foreign “country of concern,” defined as 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 Nicolás Maduro, or the Syrian Arab Republic, or any agency of or any other entity of significant control of such foreign country of concern. The Statute prohibits the acquisition of (1) any interest in agricultural land by a foreign principal, (2) any interest in real property located near a military installation or critical infrastructure by a foreign principal, and (3) any real estate interest by a foreign principal of the People’s Republic of China, subject to very limited exceptions. The law is currently in effect; however, the case is still ongoing.
WHAT SHOULD CLIENTS DO NOW AND NEXT?
Failure to comply with the requirements of the Statute may well expose individuals and entities to civil penalties, as well as potential forfeiture of their property. If you are an entity that may potentially have any beneficial owners from a country of concern, you should review ownership structures to determine if any reporting requirements or restrictions will apply to you. Notably, the Statute applies to acquisitions of any interest in land, and it is unclear whether it also could apply to certain leasehold estates. Sellers, buyers, landlords, tenants, and real estate professionals should remain aware of Florida’s requirements for disclosures of foreign principals at the inception of contract negotiations and at closing of real estate purchase and leasing transactions. Florida mortgage lenders and landlords likely will adopt further documentation requirements for verifying the status of borrowers and tenants under “know your client/tenant” inquiries and disclosures.
WHAT REAL ESTATE TRANSACTIONS DOES THE STATUTE APPLY TO?
The Statute applies in three scenarios: (1) agricultural land held by a foreign principal; (2) property near military installations or critical infrastructure held by a foreign principal, and (3) real estate held by a foreign principal from the People’s Republic of China.1
Under these rules, a “foreign principal” is broadly defined and includes an entity or individual that has ties to a “country of concern,” including a person who is domiciled in a country of concern and not a US citizen or lawful US permanent resident, an entity organized or having its principal place of business in a country of concern or a subsidiary of such entity, or any person, entity, or collection of persons or entities described above having a controlling interest in an entity or subsidiary formed for the purpose of owning real property in Florida.2
There is an exemption for an indirect de minimus ownership interest in the underlying land. A foreign principal may acquire and hold an ownership interest if such interest is held as equities in a publicly traded company owning the land and the ownership interest is (a) less than 5% of any class of registered equities or less than 5% in the aggregate in multiple classes of the registered equities or (b) a noncontrolling interest in an entity controlled by a company that is both registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended, and is not a foreign entity.3
Prohibition Related to Agricultural Land
Foreign principals are barred from, directly or indirectly, acquiring an interest in agricultural land.4 For these purposes, “agricultural land” means land classified as agricultural by the property appraiser as required under section 193.461 of the Florida Statutes.5 In general, this is land that must adhere to specific use requirements in order to obtain and maintain the tax advantages of the agricultural classification. 
Prohibition Related to Property Near Military Installations or Critical Infrastructure
Foreign principals are also prohibited from acquiring property interests if the underlying property lies within 10 miles of a military installation or critical infrastructure facility.6 The definition of “critical infrastructure facility” is comprised of ten (10) types of facilities that employ security measures that are designed to exclude unauthorized persons, such as electrical power plants, water treatment facilities, seaports, and airports.7 There is a limited residential property exception that allows foreign principals to acquire residential real property of no more than two acres in size if (a) the residential real property is not located within five miles of a military installation, (b) the foreign principal holds a US visa, and (c) the purchase is in the name of the US visa holder.8
Prohibition on the Acquisition of Property by Chinese Concerns
Finally, foreign principals of the People’s Republic of China are prohibited from acquiring any real property located within the state of Florida.9 The limited residential property exception, described above, is available to a natural person who would otherwise be prohibited from acquiring such property.10 
Exceptions
Foreign principals who owned an interest in property as describe above prior to 1 July 2023, may continue to hold such interest.11 However, foreign principals will be required to register such ownership with the Florida Department of Agriculture and Consumer Services (FDACS), in the case of agricultural land, and the Florida Department of Commerce (formerly, the Department of Economic Opportunity) (FDC), in all other cases, before 1 January 2024.12
In addition, a foreign principal may acquire prohibited property on or after 1 July 2023, by devise or descent, through the enforcement of security interests, or through the collection of debts, provided that the person or entity registers such ownership and sells, transfers, or otherwise divests itself of such real property within three years after acquiring the real property.13 
Compliance and Penalties
Purchase and sale contracts involving assets that include Florida real property must be accompanied by a notice to be acknowledged by the buyer, either as a separate disclosure document or as an element of the contract. Furthermore, at closing of any acquisition or other transfer of Florida real estate, the buyer must provide an affidavit certifying under penalties of perjury that it is not a foreign principal as defined in section 692.201(4) and it is otherwise in compliance with the new Statute.14 Notably, completion of both the notice and the affidavit will require careful review and understanding of the Statute.
The failure to obtain an affidavit will not create a title defect or affect insurability, and absent actual knowledge that the buyer is a foreign principal, the closing agent will not have civil or criminal liability for noncompliance.15 However, interests in land acquired in violation of the ban may result in forfeiture of the property to the state.16 Enforcement is delegated to the FDACS, in the case of agricultural land, and the FDC, in the case of other property, which are empowered to file a lis pendens and petition the circuit court of applicable jurisdiction to enter an order of forfeiture.17 In the case of forfeiture, the state acquires the property subject to the rights of any lienholders.18 
In advance of the Florida Real Estate Commission (FREC) promulgation of official forms for Notices to Purchasers and Affidavits for Purchasers with Foreign Interests, the Florida Land Title Association (FLTA) is recommending use of a set of forms that can be obtained at https://www.flta.org/ForeignInterests, which include forms of affidavits for individuals or entities with foreign interests, and a form of notice that contains a summary of the legal prohibitions and compliance requirements.
EFFECTIVE DATES AND REPORTING
The prohibitions on the acquisition of agricultural land by foreign principals, property near military installations or critical infrastructure by foreign principals, and real estate by foreign principal from the People’s Republic of China, as well as the affidavit requirement, became effective on 1 July 2023.19 The Statute does not provide a stated exemption for properties that went under contract before 1 July 2023 but closed (or are scheduled) after that date. Contracts and leases presently under negotiation and future transactions should address the prohibitions and compliance requirements and buyer disclosures. All buyers and tenants, regardless of foreign principal status, will be required to comply with these requirements after 1 July 2023. 
As noted above, for property held before 1 July 2023, or acquired after such date by devise or descent, through the enforcement of security interests, or through the collection of debts, foreign principals will have the obligation to report and register their ownership to the FDACS, in the case of agricultural land, or the FDC, in all other cases, before 1 January 2024 or within 30 days of such acquisition.20 Registration will be deemed filed late and subject to fines if filed 30 days after 31 January 2024 or 30 days after such acquisition.21 Failure to register may result in a civil penalty of US$1,000 per day of noncompliance.22
RECENT DEVELOPMENTS
On 22 May 2023, a lawsuit was filed in the U.S. District Court for the Northern District of Florida claiming that the Statute violates the Equal Protection Clause, Due Process Clause, and Supremacy Clause of the U.S. Constitution and the Fair Housing Act and is seeking an injunction against implementation of this Statute.23 The Department of Justice issued a Statement of Interest arguing that the Statute is unconstitutional.24 However, on 17 August 2023, a Florida federal judge denied the plaintiffs motion for preliminary injunction, finding that the plaintiffs did not demonstrate a substantial likelihood of success on the merits of their claims.25 An emergency motion for an injunction pending appeal was quickly filed by the plaintiffs on 21 August 2023, and denied on 23 August 2023.26 On 26 August 2023, the plaintiffs filed for an injunction and expedited appeal with the US Court of Appeals for the Eleventh Circuit. The case is still ongoing. 
Meanwhile, the Statute authorizes the FDC, FDACS, and FREC to begin rulemaking concerning compliance and implementation of this Statute. The FLTA forms are precursors to such future rulemaking, and thus eventually will be superseded by such FREC rules and related forms when adopted under the Florida Administrative Code. On 7 August 2023, the FDC and FREC announced plans to propose regulations related to Senate Bill 264. 
Florida is not alone in its interest in tracking or prohibiting foreign ownership of certain real estate assets. In addition to the federal reporting regime under the Agricultural Foreign Investment Disclosure Act of 1978, as amended, many states, including Alabama, Arkansas, Idaho, Louisiana, Montana, Ohio, Tennessee, Utah, and Virginia, which have each enacted laws in in 2023, have implemented various restrictions and reporting requirements related to foreign beneficial ownership of real estate. Moreover, the United States is not unique in its interest in the identity of foreign owners of real estate within its borders. 

Footnotes

1 Fla. Stat. § 692.201-205 (2023).
2 Fla. Stat. § 692.201(4) (2023).
3 Fla. Stat. §§ 692.202(1), 692.203(1), 692.204(1)(b) (2023).
4 Fla. Stat. § 692.202(1) (2023).
5 Fla. Stat. § 692.201(1) (2023).
6 Fla. Stat. § 692.203(1) (2023).
7 Fla. Stat. § 692.201(2) (2023).
8 Fla. Stat. § 692.203(4) (2023).
9 Fla. Stat. § 692.204(1) (2023).
10 Fla. Stat. § 692.204(2) (2023).
11 Fla. Stat. §§ 692.202(2), 3(a), 692.203(2), (3)(a), 692.204(3), 4(a) (2023).
12 Id.
13 Fla. Stat. §§ 692.202(4), 692.203(4), 692.204(5) (2023).
14 Fla. Stat. §§ 692.202(6), 692.203(6), 692.204(6) (2023).
15 Id.
16 Fla. Stat. §§ 692.202(7), 692.203(7)(a), 692.204(7)(a) (2023).
17 Fla. Stat. §§ 692.202(9), 692.203(7), 692.204(7)(b) (2023).
18 Fla. Stat. §§ 692.202(6)(e), 692.203(6)(e), 692.204(7)(e) (2023).
19 S. 264, 2023 Leg., Reg. Sess. § 12 (2023) (enacted).
20 Fla. Stat. §§ 692.202(2), 3(a), 692.203(2), (3)(a), 692.204(3), 4(a) (2023).
21 Id.
22 Id.
23 Complaint, Shen v. Wilton, Case No. 4:23-cv-208-AW-MAF (N.D. Fla. May 22, 2023).
24 Amicus Curiae Brief by United States, Shen v. Wilton, Case No. 4:23-cv-208-AW-MAF (N.D. Fla. June 27, 2023).
25 Preliminary Injunction Decision, Shen v. Wilton, Case No. 4:23-cv-208-AW-MAF (N.D. Fla. August 17, 2023).
26 Notice of Appeal, Shen v. Wilton, Case No. 4:23-cv-208-AW-MAF (N.D. Fla. August 21, 2023); Order Denying Motion for Injunction Pending Appeal, Shen v. Wilton, Case No. 4:23-cv-208-AW-MAF (N.D. Fla. August 23, 2023).

Even Passive Trusts?!? Maryland Extends Mortgage Lender Licensure Requirements to Holders of Residential Mortgage Loans

The Maryland Office of Financial Regulation (OFR) issued new guidance and emergency regulations extending mortgage lender licensure requirements to include acquirers and assignees of residential mortgage loans on Maryland properties. This guidance stems from the Maryland Appellate Court’s decision in Estate of Brown v. Ward (April 2024), extending the licensing obligations—previously understood to apply to brokers, originating lenders and servicers—to all parties who acquire or are assigned Maryland mortgage loans. The OFR explicitly states those parties include “mortgage trusts, including passive trusts,” unless expressly exempted.
The new guidance took effect immediately when released on January 10, 2025, but the OFR has indicated that enforcement actions will be suspended until April 10, 2025, allowing time for acquirers and assignees (and, yes, even passive trusts) to apply for the necessary licenses “without undue burden.”
Formal Guidance and Emergency Regulations
While the OFR had not previously interpreted Maryland’s Mortgage Lender Law to apply to assignees of mortgage loans, this new guidance, and the emergency regulations introduced to implement this guidance, “clarify” that licensing requirements now extend to assignees and mortgage trusts (yes, that’s right, even passive trusts). As background, the OFR indicates this clarification recognizes the reasoning in Estate of Brown, where the Court determined that an assignee of a HELOC subject to the open-end credit grantor (OPEC) provisions required a mortgage lender license based on (1) the inclusion of assignees in the definition of credit grantor under the OPEC scheme and (2) the common law principle “that an assignee inherits the rights and obligations of the original lender, including the duty to be licensed under Maryland law.”
The OFR’s guidance, however, goes further than the Estate of Brown decision. The OFR extends the Estate of Brown rationale to require a license under either the Maryland Mortgage Lender Law or the Installment Loan Law for any entity acquiring or assigned any mortgage loan.
Additionally, the emergency regulations make minor adjustments to accommodate the licensing of passive trusts:

Principal Officer Requirements: The regulations clarify that for passive trusts, the principal officer (who must have at least three years of experience in the mortgage business) can be the trustee, or if the trustee is an entity, an individual deemed a principal officer of the trustee under the criteria of the existing regulation.
Net Worth Requirements for Passive Trusts: Passive trusts can meet the net worth requirement by providing evidence that they hold or will hold sufficient assets to satisfy the requirement within 90 days of licensure, if the trust’s only assets are mortgage loans that it has not yet acquired.

Estate of Brown v. Ward
In Estate of Brown, the Court ruled that a consumer could use a defense against foreclosure because the assignee of the related HELOC was not licensed under the Maryland Credit Grantor provisions. The Court determined that the assignee—despite not originating the loan—was still required to be licensed to take advantage of the streamlined foreclosure process available to licensed entities.
The Court’s reasoning relied heavily on the statutory definition of “credit grantor” under Maryland law, which was amended to make a “correction” in 1990 to, among other things, include assignees in this definition. The court interpreted this to mean that the licensure requirement – which applies to a credit grantor that “makes” a loan – applies to assignees, in line with the principle that an assignee generally takes on the same rights and obligations as the assignor. This interpretation relied on the Court’s decision in Nationstar Mortgage LLC v. Kemp (2021), which concluded that assignees were subject to statutory usury and fee provisions applicable to “licensees” because assignees inherit the same responsibilities under the law as the original lender. The Estate of Brown decision extended this rationale to hold that because assignees succeed to the same rights and obligations as the assignor there was no indication that the legislature intended to exclude assignees from the licensure provisions.
Next Steps for Acquirers or Assignees of Maryland Mortgage Loans
For those involved in transactions involving Maryland mortgage loans (we’re looking at you sponsors securitizing Maryland mortgage loans), your immediate first step should be to carefully review your activities to determine whether licensure is required and if any exemptions apply. The importance of this first step was emphasized through the OFR’s January 31 bulletin which confirmed that “neither the [Estate of Brown] decision, nor OFR Guidance, overrides the[] statutory exemptions and exclusions” included in the licensure schemes (one of which exists for GSEs and trusts created by GSEs).
Key steps to consider include:

Identify the acquirer or assignee of the loan: Is it a statutory trust, limited liability company or corporation that is a separate legal entity or a common law trust that is not?
Check for applicable exemptions: While no express exemption for trusts is provided, ask if any other exemptions could apply to the trust in your structure.
Determine how the loan is being assigned: In the case of a trust, is the acquisition or assignment structured to transfer title to loan to the trust itself or to a trustee on behalf of a trust?
Assess how title is being recorded: In the case of a trust, is title being recorded in the name of the trust or in the name of the trustee (which is the more typical approach)?

Working through these steps will help determine if the acquirer or assignee is within the scope of the OFR’s guidance and emergency regulations and/or whether an exemption may apply.
With less than 50 business days between now and when the OFR may pursue enforcement actions on April 10, 2025, those who currently hold or may in the future acquire or be assigned Maryland mortgage loans and those who sponsor mortgage trusts or other entities to do so should strongly consider preparing for licensure. That may mean the following:

Register for the Nationwide Multistate Licensing System (NMLS): Maryland license applications must be submitted through the Nationwide Multistate Licensing System (NMLS), and an NMLS account is required.
Determine the “principal officer” to be identified on the license application: A principal officer with at least three years of mortgage lending experience must be designated.
Engage in discussions with your trustees if you have a mortgage trust and determine the “principal officer” may be the trustee or a principal officer of the trustee: Coordination with the trustees of mortgage trust (yes, including passive trusts) will be critical to navigating the licensure requirements and related application, especially if you determine that the principal officer will be an employee of the trustee.
Ensure compliance with net worth requirements: Passive trusts must be able to satisfy the statutory net worth requirement by providing evident of the assets that will be held within 90 days of licensure.

While we are actively participating in the preparation of a legislative proposal intended to further clarify Maryland’s mortgage lender licensure laws in a way that does not unduly impair the secondary trading and the securitization of Maryland mortgage loans, the legislative process can be unpredictable. Start now, rather than passively waiting for April 10, 2025 to arrive. As always, Hunton stands ready to help you navigate these and other regulatory challenges.

REBO Quarterly: 2024 in Retrospect

STATE-LEVEL REAL ESTATE BENEFICIAL RESTRICTIONS ON OWNERSHIP
2024 was a busy year for legislatures throughout the United States on the topic of limitations and restrictions on ownership of real property assets. Last year, state legislators introduced over 75 bills in 29 states throughout the country that affect the beneficial ownership of real property. Legislative proposals affecting beneficial ownership generally fell into three categories: restricting ownership of agricultural land by foreign persons or entities; restricting ownership of any real property near critical infrastructure by foreign persons or entities; and restricting ownership of agricultural land by corporate entities.
The most common ownership bills specifically targeted individuals, entities, and governments from certain countries designated as “foreign countries of concern.” These “foreign countries of concern” most often included the People’s Republic of China, Iran, Russia, North Korea, and Venezuela.
While the majority of bills introduced pertain to foreign ownership, certain states have also explored restricting domestic corporate ownership of real property. Growing interest in enacting corporate farming laws has the potential to trigger unintended consequences that the commercial real estate industry must be aware of when acquiring tracts of land, particularly when acquired for development in rural or semi-rural areas. In addition, corporate ownership provisions may be intertwined within larger foreign ownership legislative proposals, necessitating a careful analysis of all bills affecting beneficial ownership of land.
Successfully Enacted State Beneficial Ownership Bills
Of the successful bills prohibiting certain parties from owning land, the definition of those subject to restriction varies by state. The majority of bills passed in 2024 prohibit “foreign adversary” citizens, governments, and business entities as defined in 15 C.F.R. § 7.4, a list generated by the secretary of the Department of Commerce, which currently lists the People’s Republic of China, Cuba, Iran, North Korea, Russia, and Venezuela. Others prohibit adversaries designated by the secretary of state as a Country of Particular Concern,1 or countries subject to international traffic in arms regulations under 22 C.F.R. § 126.1.2 Some seek to define adversaries as those parties on sanctions lists maintained by the Office of Foreign Assets Control,3 while others directly name a list of countries.4
States also diverge in the exemption provisions they include in law. Louisiana and Indiana exempt legal permanent residents from their foreign ownership laws. Louisiana’s HB 238 also contains a provision not found in other bills passed this year that exempts religious, educational, charitable, or scientific corporations. Oklahoma, Tennessee, Nebraska, and Kansas bills exempt from their ownership laws business entities that have a national security agreement with the Committee on Foreign Investment in the United States (CFIUS). Georgia, Mississippi, and South Dakota bills stipulate that foreign ownership prohibitions do not apply to business entities leasing land for agricultural research and development purposes. Indiana specifies that its prohibition law does not apply to agricultural land that has not been used for farming within the last five years, unless it is recognized by the US Farm Service Agency as farmland.
Proposed foreign ownership bills around the country differ in their treatment of existing real property owned by prohibited foreign parties. The most common treatment of the bills that were successful in 2024 was to direct any prohibited parties to divest of their ownership interest within a certain timeframe of the bill’s effective date, typically one or two years.5 Some bills specify that their provisions only apply after the bill’s effective date or a future date.6 In rare circumstances, a bill will apply retroactively; Idaho’s HB 496 was signed into law in March 2024 but applied retroactively to April 2023.
The following 15 bills impacting beneficial ownership of land were approved by state legislatures in 2024:
Georgia SB 420
Introduced on 29 January and signed into law on 30 April, the bill adds a new section to the code that provides that no nonresident alien shall acquire directly or indirectly any possessory interest in agricultural land or land within 10 miles of any military installation. In this case, “nonresident alien” is defined narrowly to mean a noncitizen of the United States who also is an agent of a foreign government designated as a foreign adversary and has been absent from the United States for six out of the preceding 12 months. The prohibition also applies to business entities domiciled in a foreign adversary or domiciled in the United States but with 25% ownership by a foreign adversary.
Idaho HB 496
HB 496 was introduced on 7 February and signed by the governor on 12 March. It amends existing foreign ownership restrictions to exempt federally recognized Indian tribes from the definition of “foreign government.” It also adds forest lands to the kinds of property that foreign governments and state-controlled enterprises are prohibited from acquiring.
Indiana HB 1183
Introduced on 9 January and signed into law on 15 March, the bill, in addition to prohibiting citizens or business entities controlled by a foreign adversary (which includes the People’s Republic of China, Cuba, Iran, North Korea, Russia, and Venezuela) from acquiring agricultural land in the state, also specifically prohibits the acquisition of mineral rights, water rights, or riparian rights on agricultural land.
Iowa SF 2204
Introduced on 1 February and signed into law on 9 April, the bill tightens existing Iowa statutes restricting foreign persons and business entities from acquiring agricultural land suitable for use in farming. The act amends Iowa code by eliminating a provision in law that suspends certain registration requirements, thereby restoring its requirements. SF 2204 also expands the information required to be completed in a registration form to include the identity of the foreign person or authorized representative; the identity of any parent corporation, subsidiary, or person acting as an intermediary; the purpose for holding the agricultural land; and a listing of any other interest in agricultural land held by the registrant that exceeds 250 acres.
Iowa SF 574
SF 574 was introduced on 24 April 2023, and carried over into 2024, where it was signed by the governor on 1 May. The bill created the “Major Economic Growth Attraction Program.” As part of multiple provisions relating to economic development, the law authorizes the Iowa Economic Development Authority board to give an exemption to the existing restrictions in law on agricultural land holdings for a foreign business if it meets certain requirements. These requirements include a business locating the project on a site larger than 250 acres and a business making a qualifying investment in the proposed project of over US$1 billion.
Kansas SB 172
SB 172 was introduced on 7 February and passed by the Kansas Legislature on 30 April. However, Kansas Governor Laura Kelly (D) vetoed the bill. The bill would have prohibited foreign principals from acquiring any interest in nonresidential real property within 100 miles of any military installation. Given the wide restriction range and the position of McConnell Air Force Base in Wichita near the center of the state, the bill would have applied to most areas of the state. Democrats largely opposed the legislation, and critics of the bill voiced concern that language in the bill allowing seizure of private property without guaranteed compensation would be unconstitutional. In her veto message, Governor Kelly wrote:
“While I agree that it is important for our state to implement stronger protections against foreign adversaries, this legislation contains multiple provisions that are likely unconstitutional and cause unintended consequences…the retroactive nature of this legislation raises further serious constitutional concerns.”
The bill ultimately was not reconsidered by legislators and did not become law.
Louisiana HB 238
HB 238 was introduced on 27 February and was signed into law on 3 June. The bill restricts foreign adversaries or corporations in which a foreign adversary has a controlling interest from owning, acquiring, leasing, or otherwise obtaining any interest in agricultural land. The law defines “foreign adversary” as the People’s Republic of China (and Hong Kong), Iran, Cuba, North Korea, Russia, and Venezuela.
Mississippi SB 2519
Introduced on 16 February and signed by the governor on 15 April, the bill prohibits ownership of majority part or a majority interest in forest or agricultural land by a nonresident alien. “Majority part” or “majority interest” means an interest of 50% or more in the aggregate held by nonresident aliens. “Nonresident alien” is defined as an individual or business entity domiciled in the People’s Republic of China, Cuba, Iran, North Korea, Russia, or Venezuela, or an entity domiciled in the United States but majority owned by a foreign adversary entity. In addition, the bill specifies that land classified as industrial or residential but is otherwise used as forest or agricultural land shall be subject to the act.
Nebraska LB 1301
Introduced on 16 January at the request of the governor, LB 1301 was signed on 16 April. The bill amends existing law to prohibit nonresident aliens, foreign corporations, and foreign governments from purchasing, acquiring title to, or taking any leasehold interest extending for a period for more than five years (or any other greater interest less than a fee interest) in any real estate in the state by descent, devise, purchase, or otherwise. The law also prohibits restricted entities from purchasing, acquiring, holding title to, or being a lessor or lessee of real estate for the purpose of erecting manufacturing or industrial establishments, with certain exemptions.
Nebraska LB 1120
Separately, LB 1120, which was introduced on 10 January and also signed into law on 16 April, requires that upon a conveyance of real property located in whole or in part within a restricted area (i.e., within a certain radius of critical infrastructure or a military installation), the purchaser must complete and sign an affidavit stating it is not affiliated with any foreign government or nongovernment person determined to be a foreign adversary pursuant to 15 C.F.R. § 7.4. Specifically, the bill targets those individuals and entities from the People’s Republic of China, Cuba, Iran, North Korea, Russia, and Venezuela.
Oklahoma SB 1705
Introduced on 5 February and approved by the governor on 31 May, the bill amends the exiting foreign ownership law to prohibit foreign government adversaries and foreign government enterprises from acquiring land in the state. The law defines a “foreign government enterprise” to mean a business entity or state-backed investment fund in which a foreign government adversary holds a controlling interest.
South Dakota HB 1231
HB 1231 was introduced on 31 January and signed by the governor on 3 March. Prior to passage, South Dakota prohibited aliens and foreign governments from acquiring agricultural lands exceeding 160 acres. HB 1231 prohibits foreign entities from owning, leasing, or holding an easement on agricultural land in the state unless the lease is exclusively for agricultural research purposes and encumbers no more than 320 acres, or the lease is exclusively for contract feeding of livestock.
Tennessee HB 2553
HB 2553 was introduced on 31 January and was signed into law on 21 May. The bill replaces the prior definitions of individuals and entities restricted in their real property ownership and expands upon land ownership restrictions through the creation of two separate prohibitions: one that restricts a prohibited foreign-party-controlled business from acquiring an interest in public or private land and another that restricts a prohibited foreign party from acquiring an interest in agricultural land (regardless of whether the party intends to use it for nonfarming purposes). Additionally, HB 2553 creates the Office of Agricultural Intelligence within the Tennessee Department of Agriculture to enforce the new law.
Utah HB 516
Introduced on 8 February and signed into law on 21 March, the bill modifies the definition of a “restricted foreign entity” to prevent entities owned or majority controlled by the following governments from obtaining any interest in real property in the state: the People’s Republic of China, Iran, North Korea, or Russia.
Wyoming SF 77
SF 77 was introduced on 6 February and signed by the governor on 14 March. The bill allows the governor and the Wyoming Office of Homeland Security to designate critical infrastructure zones and requires county clerks to report each transaction involving property within a five-mile radius of the designated zones. The law also authorizes the attorney general to take any action necessary to determine the identity of any party reported by the county clerks.
Corporate Ownership Spotlight
While the majority of bills introduced in the states regarding beneficial ownership of land focused on limiting foreign actors, at least five bills proposed changes that would reduce the ability of business entities to acquire real property. Nebraska’s LB 1301 and Iowa’s SF 2204, detailed above, both made changes to existing statutes that restrict corporate entities from engaging in farming in those states. In addition, two bills in California and one in Virginia took aim at investment funds acquiring land or water rights.
California Assembly Bill 1205
As originally introduced, the bill required the State Water Resources Control Board to conduct a study and report to the legislature on the existence of speculation or profiteering by an investment fund in the sale, transfer, or lease of an interest in any surface water right or groundwater right previously put to beneficial use on agricultural lands. The measure was amended in August 2024 to remove all study provisions and instead renames and makes changes to the unrelated California Promise Program.
California SB 1153
SB 1153 would have prohibited a hedge fund from purchasing, acquiring, leasing, or holding a controlling interest in agricultural land within the state. The bill would have required the California Department of Food and Agriculture to compile an annual report containing, among other information, the total amount of agricultural land that is under hedge fund ownership, how that land is being put to use, and any legislative, regulatory, or administrative policy recommendations in light of the information from the annual report. The bill did not receive a hearing before the end of the legislative session.
Virginia SB 693
SB 693 was introduced on 19 January but did not receive a hearing before the legislative session concluded. The bill would have restricted any partnership, corporation, or real estate investment trust that manages funds pooled from investors, is a fiduciary to such investors, and has US$50 million or more in net value or assets under management on any day during a taxable year from acquiring any interest in residential land in the state.
Ongoing Rulemaking and Court Challenges
In addition to the aforementioned bills that were signed into law in 2024, certain other bills that were passed in 2023 continue to be active in 2024 and 2025. Specifically, in Florida, bills related to the foreign ownership of real property in the state continue to make headlines. Florida Statute § 692.202–.205, which were signed into law in 2023, create a three-pronged approach to restricting foreign ownership of real property assets in the state.7 The first prong prohibits the foreign ownership of agricultural land in the state with few exceptions. The second prong prohibits foreign ownership of any real property within a certain radius of critical infrastructure or military installations within the state. Lastly, the third prong prohibits Chinese ownership (at the individual, entity, or government level) of any real property within the state. The statute also creates a registration regime for all real property assets held by foreign principals prior to 1 July 2023. Administrative rules and regulations regarding the first prong of the statute were finalized as of 4 April 2024. Final rules surrounding the third prong of the laws were published in late January by the Florida Department of Commerce and will become effective 6 February 2025. In addition to the rule promulgation, the third prong of the statute is also currently being challenged in the Eleventh Circuit Court of Appeals. We continue to actively monitor these developments.
In Arkansas, SB 383 was enacted in 2023. The proposal prohibited foreign investments through two separate restrictions: a restriction on foreign-party-controlled businesses from acquiring interest in land, and a restriction on prohibited foreign parties from acquiring any interest in agricultural land. In November 2024, Jones Eagle—a digital asset mining company owned by a Chinese-born naturalized US citizen—filed a lawsuit requesting a preliminary injunction against the law. On 9 December, the presiding federal judge granted the injunction, which prevents enforcement of the law against the company until further orders from the court. The plaintiff argues that the federal government retains exclusive authority over foreign affairs, and that the Arkansas law violates this foreign affairs preemption. The court found that Jones Eagle was likely to prevail on the question, noting that the Arkansas law “go[es] so far as to target specific foreign countries for economic restrictions and conflict with the express foreign policy of the federal government as represented by the FIRRMA and ITAR regimes.”8 The case is pending in the Eighth Circuit Court of Appeals. We will continue to actively monitor these developments and their effect on recent and upcoming legislation regarding foreign ownership of real property.
FEDERAL-LEVEL RESTRICTIONS ON BENEFICIAL OWNERSHIP OF REAL ESTATE
Like state legislatures, there was a strong focus on foreign investment in agricultural land in Congress in 2024. Unlike state legislatures, Congress has not yet implemented restrictive or prohibitive measures addressing foreign or corporate ownership of real property.
Though largely a Republican effort, a few bills were bipartisan: H.R. 7678, the Protecting Against Foreign Adversary Investments Act sponsored by then-Representative Elissa Slotkin (D-MI-7), would have required CFIUS’s approval of certain real estate sales to foreign entities of concern and required a report to Congress assessing the feasibility of divestiture of real estate owned by foreign entities of concern.
Members of Congress also introduced several bills building on the Agricultural Foreign Investment Disclosure Act (AFIDA) and CFIUS authorities by (i) expanding AFIDA reporting mandates or increasing penalties for nondisclosure or both, and (ii) extending CFIUS jurisdiction over broader categories of land. There were also bills that would create new stand-alone prohibitions on purchases of US land by certain foreign persons.
A provision of proposed bill H.R. 7476 to counter Chinese influence would have required the United States Department of Agriculture (USDA) to prohibit the purchase of agricultural land by companies owned in full or in part by the People’s Republic of China. S. 3666 would have required data sharing between the USDA and CFIUS, while S. 4443 would have directed the director of national intelligence to complete a study on the threat posed to the United States by foreign investment in agricultural land. Most recently, Senator Mike Braun (R-IN) and Representative Dan Newhouse (R-WA-4) introduced companion bills requiring the USDA to notify CFIUS of each covered transaction it has reason to believe may pose a risk to national security.
In addition to stand-alone legislation, elements of some of the above bills were included in annual budget appropriations omnibus packages. On 4 March 2024, the federal Fiscal Year 2024 Agriculture Appropriations bill was signed into law by President Joe Biden as part of the Consolidated Appropriations Act, 2024. The package included a section addressing foreign ownership of agricultural land: it required the secretary of agriculture to be included as a member of CFIUS on a case-by-case basis with respect to covered transactions involving agricultural land, biotechnology, or the agricultural industry. The bill also directed the USDA to notify CFIUS of any agricultural land transaction that it has reason to believe may pose a risk to national security, particularly on transactions by the governments of the People’s Republic of China, North Korea, Russia, and Iran.
2025 FORECAST
Federal Level
The Farm Bill is a five-year package of bills that governs a broad range of agricultural programs covering commodities, conservation, nutrition, rural development, forestry, energy, and more. The last time a Farm Bill was passed into law was the Agriculture Improvement Act of 2018, which was passed on 20 December 2018 and expired on 30 September 2023. Facing a stalemate on negotiations of a new Farm Bill in late 2023 and early 2024, members of Congress agreed to pass a one-year extension of the 2018 Farm Bill to continue authorizations until the end of the fiscal year (September 2024) and the end of the crop year (December 2024).
However, Senate and House negotiations on a new Farm Bill did not sufficiently progress in 2024, so agriculture leaders again passed a one-year extension on 21 December 2024 to continue authorizations until September 2025. While there is strong commitment from Republican Congressional leadership to finalize the bill this year, success will depend on many factors, including on how quickly the House and Senate can address other policy priorities.
Both the Senate Democratic and the House Republican agriculture leaders have released draft Farm Bill proposals for a new five-year authorization. Both parties and chambers seem to agree on the need to address foreign ownership of agricultural land. The Senate Democratic and the House Republican proposals include provisions to the following:

Establish a minimum civil penalty if a person has failed to submit a report or has knowingly submitted a report under AFIDA with incomplete, false, or misleading information.
Direct outreach programs to increase public awareness and provide education regarding AFIDA reporting requirements.
Require the USDA to designate a chief of operations within the department to monitor compliance of AFIDA.
Mandate establishment of an online filing system for AFIDA reports. 

In addition, the federal House Agriculture Committee has six incoming Republicans this year—five of them newcomers to Congress—who will want to make their mark on agricultural policy in the new legislative session. Newcomer Mark Messmer (R-IN-8) previously sponsored and passed a bill in 2022 in Indiana to cap the amount of agricultural land any foreign business entity can acquire in the state. In addition, Rep. Newhouse, who has prioritized addressing foreign ownership of agricultural land in the past two years, joins the House Agriculture Committee this year. We expect to see legislation from Rep. Newhouse in this area.
State Level
With respect to the outlook in the states, 46 states meet annually, while four states (Nevada, North Dakota, Texas, and Montana) meet only during odd-numbered years. With the additional four states convening this year, we expect to see a very active year for legislative proposals affecting beneficial ownership of real property.
New Jersey and Virginia are the only states where bills from the 2024 legislative session carry over into the 2025 session, which means that all legislative proposals that were not signed into law in 2024 in the other 48 states are considered to have died and must be re-introduced in 2025.
Already as of 29 January, at least 57 bills affecting beneficial ownership have been pre-filed or introduced in 22 different states. The majority of these bills so far are aimed at preventing foreign entities from acquiring agricultural land.

Footnotes

1 Oklahoma Senate Bill (SB) 1705.
2 Tennessee House Bill (HB) 2553.
3 Nebraska Legislature Bill (LB) 1301.
4 Utah HB 516, South Dakota HB 1231.
5 Tennessee HB 2553; Kansas SB 172; Mississippi SB 2519; Utah HB 516.
6 Louisiana HB 238; Wyoming Senate File (SF) 77.
7 Marisa N. Bocci, Kari L. Larson & Douglas Stanford, Real Estate Beneficial Ownership Regulatory Alert: Florida Restricts Real Estate Ownership by Individuals and Entities From “Countries of Concern”, K&L Gates HUB (Sept. 11, 2023).
8 Jones Eagle LLC v. Ward, 4:24-cv-00990-KGB (E.D. Ark. Dec. 9, 2024).

Federal Court Applies Antitrust Standard of Per Se Illegality to “Algorithmic Pricing” Case

A federal district court in Seattle recently issued an important antitrust decision on “algorithmic pricing.” Algorithmic pricing refers to the practice in which companies use software to help set prices for their products or services. Sometimes this software will incorporate pricing information shared by companies that may compete in some way. In recent years, both private plaintiffs and the government have filed lawsuits against multifamily property owners, hotel operators, and others, claiming their use of such software to set prices for rentals and rooms is an illegal conspiracy under the antitrust laws. The plaintiffs argue that, even without directly communicating with each other, these companies are essentially engaging in price-fixing by sharing pricing information with the algorithm and knowing that others are doing the same, which allegedly has led to higher prices for consumers. So far, these cases have had mixed outcomes, with at least two being dismissed by courts.
Duffy v. Yardi Systems, Inc.
Previously, courts handling these cases have applied, at the pleadings stage, the “rule-of-reason” standard for reviewing the competitive effects of algorithmic pricing. Under the rule-of-reason standard, a court will examine the algorithm’s actual effects before determining whether the use of the algorithm unreasonably restrains competition. In December, however, the U.S. District Court for the Western District of Washington in Duffy v. Yardi Systems, Inc., No. 2:23-cv-01391-RSL (W.D. Wash.) held that antitrust claims premised on algorithmic pricing should be reviewed under the standard of per seillegality, meaning the practice is assumed to harm competition as a matter of law. Under the per sestandard, an antitrust plaintiff need only prove an unlawful agreement and the court will presume that the arrangement harmed competition. This ruling is significant because it departs from prior cases and could ease the burden on plaintiffs in future disputes.
In Yardi, the plaintiffs sued several large, multifamily property owners and their management company, Yardi Systems, Inc., claiming these defendants conspired to share sensitive pricing information and adopt the higher rental prices suggested by Yardi’s software. The court refused to dismiss the case, finding the plaintiffs had plausibly shown an agreement based on the defendants’ alleged “acceptance” of Yardi’s “invitation” to trade sensitive information for the ability to charge increased rents. See Yardi, No. 2:23-cv-01391-RSL, 2024 WL 4980771, at *4 (W.D. Wash. Dec. 4, 2024). The court also found the defendants’ parallel conduct in contracting with Yardi, together with certain “plus factors,” were enough to allege a conspiracy. The key “plus factor” was defendants’ alleged exchange of nonpublic information. The court noted the defendants’ behavior — sharing sensitive data with Yardi — was unusual and suggested they were acting together for mutual benefit.
The court decided the stricter per serule should apply to algorithmic pricing cases, rather than the rule-of-reason. The court emphasized that “[w]hen a conspiracy consists of a horizontal price-fixing agreement, no further testing or study is needed.” Id. at *8. This decision diverged from an earlier case against a different rental-software company, where the court thought more analysis was needed because the use of algorithms is a “novel” business practice and thus not one that could be condemned as per seillegal without more judicial experience about the practice’s competitive effect. The Yardi case also stands apart from others that have been dismissed, like a prior case involving hotel operators, where there was no claim that the companies pooled their confidential information in the dataset the algorithm used to suggest prices. The court in that case decided that simply using pricing software, without sharing confidential data, did not necessarily mean there was illegal collusion. Future cases may thus depend in part on whether the software uses competitors’ confidential data to set or suggest prices.
It is unclear if other courts will adopt the same strict approach as the Yardi case when dealing with claims involving algorithmic pricing. It is clear, however, that more cases are on the horizon, likely spanning a variety of industries using pricing software.
Regulatory Efforts
Beyond private lawsuits, government agencies and lawmakers also are paying close attention to algorithmic pricing. Last year, for example, the U.S. Department of Justice (DOJ) and a number of state attorneys general sued a different rental-software company. The DOJ also has weighed in on several ongoing cases. Meanwhile Congress, along with various states and cities, has introduced laws to regulate algorithmic pricing, with San Francisco and Philadelphia banning the use of algorithms in setting rents. And just last month, the DOJ and Federal Trade Commission raised concerns about algorithmic pricing in a different context — exchanges of information about employee compensation — in the agencies’ new Antitrust Guidelines for Business Activities Affecting Workers. The new guidelines note that “[i]nformation exchanges facilitated by or through a third party (including through an algorithm or other software) that are used to generate wage or other benefit recommendations can be unlawful even if the exchange does not require businesses to strictly adhere to those recommendations.” Expect more legal and legislative action on this front in 2025 and beyond.

(UK) Revolution Bars: When is a Meeting Really a Meeting?

In his judgment to sanction the restructuring plan (“RP”) of Revolution Bars[1], Justice Richards proceeded on the basis that the Class B1 Landlords and the General Property and Business Rate Creditors were dissenting classes, notwithstanding that they approved the Plan by the statutory majority. This is because they did not approve the Plan at “meetings”, since only one person was physically present at each “meeting” even though the chair held proxies from other creditors.
Pursuant to Part 26A of the Companies Act 2006, to agree a RP, at least 75% in value of a class of creditors, present and voting either in person or by proxy at the meeting, must vote in favour (section 901F). This is repeated when considering the cross-class cram down (“CCCD”), which can be applied “if the compromise or arrangement is not agreed by a number representing at least 75% in value of a class of creditors… present and voting either in person or by proxy at the meeting” (section 901G).
Applying various case law on the subject, we now have the following guidance in relation to a “meeting” for the purposes of RPs:

The ordinary legal meaning of a meeting requires there to be two or more persons assembling or coming together[2];
If there is only one shareholder, creditor or member of a relevant class, that would constitute a “meeting” by necessity, but a meeting in this instance would be considered an exception to the ordinary legal meaning[3];
An inquorate and invalid “meeting” does not preclude the court from exercising its discretion to apply a CCCD to those “dissenting” classes[4].

To ensure a proper “meeting”, there must be two or more creditors physically present (where two or more creditors exist in a class). The physical presence of only one person voting in two capacities – as creditor and as proxy for another – will not suffice, nor will it suffice if the chair holds proxies and there is only one creditor in attendance. Only in cases where there is one creditor in a class, will a meeting of one be valid. If there is no valid meeting, the creditors of that class will be treated as dissenting, and potentially subject to CCCD (assuming the RP has also met the relevant voting threshold and CCCD is engaged).
It does beg the question – if the circumstance were to arise where there were no valid meetings, then what? It seems likely that the RP would fall at the first hurdle.
In this case, the judge sanctioned the CCCD of all “dissenting” classes, and the RP.
Notably, in Re Dobbies Garden Centre Limited[5] the Scottish court took a different approach. Here, only one creditor attended the meeting of the only “in the money” class which approved the plan. If the court had adopted the approach in Revolution Bars, that meeting would be considered invalid, the class categorised as dissenting and the plan would not have been sanctioned.
Focusing on the words “either in proxy or by person” as a qualifier to being “present and voting”, the Scottish court found that a meeting may be quorate where two or more creditors were in attendance or represented in person, or by proxy, or by a combination, and one person can act in two capacities; therefore the meeting was valid.

[1] [2024] EWHC 2949 (Ch)
[2] Sharp v Dawes (1876) 2 Q.B.D. 26
[3] East v Bennett Bros Ltd [1911] 1 Ch. 163; Re Altitude Scaffolding [2006] BCC 904
[4] Revolution Bars
[5] [2024] CSOH 11

Morgan Lewis Welcomes Jerry Fujii and Naoki Ueyama to Tokyo Office

Morgan Lewis Welcomes Jerry Fujii and Naoki Ueyama to Tokyo Office. Morgan Lewis is excited to announce the addition of two highly esteemed partners, Gerald “Jerry” Fujii and Naoki Ueyama, to its Tokyo office. Both bring a wealth of expertise in real estate transactions and diverse financing options, including green financing, to further strengthen the […]

Spurred on by the Steward Health Care Bankruptcy, Massachusetts Adopts Bill Regulating Private Equity and REITs in Health Care, Continuing a National Trend

On January 8, 2025, Massachusetts Governor Maura Healey signed into law House Bill 5159 (the “Bill”). The Bill grants the state new regulatory powers to oversee and review health care transactions involving private equity firms, real estate investment trusts (“REITs”), and management services organizations (“MSOs”). The Bill is the tenth law enacted in recent years to scrutinize health care transactions, and its enactment in Massachusetts highlights the continued expansion of state oversight of health care transactions.
Key Provisions

Expanded Definition of “Material Change Transaction” That Requires Reporting: As further described below, the Bill broadens the scope of what constitutes a material change transaction to include transactions involving private equity firms, REITs, and MSOs, such as changes in ownership, significant asset transfers, and conversions of nonprofit organizations to for‑profit entities.[1]
Additional Annual Reporting Requirements: For providers and facilities that have existing annual reporting obligations to the Center for Health Information and Analysis (“CHIA”), the Bill expands the reporting obligation to require detailed disclosures on ownership structures and finances, including information involving parent entities and affiliates.[2]
Penalties for Non‑Compliance: The Bill increases penalties for entities that fail to comply with reporting obligations to up to $25,000 per week.[3]
Post‑Closing Oversight by the Health Policy Commission (“HPC”): The Bill grants HPC authority to assess the impact of “significant equity investors” on health care costs, and such oversight may be exercised up to five years post‑closing of a transaction.[4]
Massachusetts False Claims Act Liability for Investors: The Bill expands the definition of “knowledge” under the Massachusetts False Claims Act, expanding potential liability to entities with an “ownership or investment interest” (defined below) that are aware of a False Claims Act violation but fail to disclose such violation within 60 days.[5] The expanded definition is presumably intended to target sponsors and investors, who, through transaction‑related diligence activities or post‑closing operational involvement, learn of potential violations of the state’s False Claims Act. Sponsors and investors with substantial exposure to businesses with Medicaid revenue should discuss the impacts of this theory of liability with regulatory and deal counsel.
Expanded Attorney General Involvement: The Bill grants the Attorney General with expanded powers to intervene in HPC hearings, and empowers the Attorney General to compel entities to produce documents or provide testimony under oath with respect to information submitted to CHIA.[6]
Prospective Prohibition on Hospital‑REIT Sale‑Leaseback Arrangements: Under the Bill, the state will not issue an acute‑care hospital license to any facility “if the main campus of the acute‑care hospital is leased” from a REIT.[7] Relationships in effect before April 1, 2024 will be grandfathered and such grandfathered status will be transferrable in a change of ownership.

History and Regulatory Backdrop
History of Regulation of Health Care Facilities
Although the Bill is among the most comprehensive and far‑reaching in the nation, it is not without precedent. As described by Proskauer in a number of recent alerts, publications, and presentations (including for the American Health Law Association and the New York State Bar Association), elected officials in a number of states have reacted to the decade‑old surge in investment in the health care sector with measures that are intended to scrutinize and increase transparency over such transactions.
In addition, transaction review laws build upon existing, and sometimes controversial, regulatory review mechanisms that impact the health care industry, particularly “Certificate of Need” (“CON”) laws. By way of background, and as a result of now‑defunct federal requirements, states in the 1970s adopted CON laws, a form of economic planning intended to avoid over‑supply.[8] State CON laws, many of which remain in effect,[9] regulate health care facilities (e.g., hospitals and ASCs) and typically impose approval or reporting requirements over certain transactions, such as facility renovations, expansions or mergers, or the purchase of complex medical equipment (e.g., CT or MRI).
Despite this backdrop of substantial regulation affecting health care facilities, many states have historically had limited to no regulatory review authority over transactions affected physicians and physician practices. In light of existing regulatory oversight affecting facilities, state legislators may view health care transaction laws as incremental expansions over state regulatory powers. In contrast, investors and their stakeholders are likely to view these laws as material expansions, given that there was historically limited regulatory oversight for these transactions.
The Impact of the Steward Health Care Bankruptcy
The Bill should be viewed as a reaction by Massachusetts elected officials to the bankruptcy of Steward Health Care. The bankruptcy, which was widely reported on and resulted in a number of federal and state‑level legislative hearings, impacted Massachusetts residents, in particular, and resulted in the Massachusetts Department of Public Health establishing a call center dedicated to answering public questions regarding the bankruptcy.
As summarized by the Massachusetts Senate in the first sentence of a press release concerning the Bill, the “Bill helps close gaps that caused the Steward Health Care collapse.”[10]
Expanded Definition of Material Change Transactions
Under existing Massachusetts law, health care providers and organizations with annual net patient service revenue exceeding $25 million are required to submit a Material Change Notice (“MCN”) to HPC, CHIA, and the Office of the Attorney General at least 60 days prior to a proposed material change.
The Bill broadens the scope of what constitutes a material change that requires the submission of an MCN to include the following:[11]

Transactions involving a “Significant Equity Investor” that result in a change of ownership or control of a provider or provider organization. The term “Significant Equity Investor” (which is excerpted, in its entirety, at the end of this post) is defined to include any private equity firm with a financial interest in a provider, provider organization, or MSO, as well as any investor or group holding 10% or more ownership in such entities.
“Significant acquisitions, sales, or transfers of assets, including, but not limited to, real estate sale‑leaseback arrangements.”
“Significant expansions in a provider or provider organization’s capacity.”
Conversion of nonprofit providers or organizations to for‑profit entities.
Mergers or acquisitions leading to a provider organization “attaining a dominant market share in a particular service or region.”

Of note, some of new categories, such as “significant expansion” in “capacity”, are ambiguous and do not adopt firm reporting threshold or parameters, which we expect are likely to be addressed via further rule‑making or guidance.
Implications for Private Equity Investors and REITs
The Bill represents a significant shift in the regulatory landscape for private equity investors and REITs in Massachusetts, and the Bill makes Massachusetts an outlier among the states with respect to the obligations and duties imposed upon investors and REITs.
Notwithstanding the foregoing, the Bill’s requirements represent a significant evolution, the product of ongoing legislative compromise. When introduced in the Massachusetts Senate as Senate Bill 2871 in 2024, the Bill’s precursor included additional statutory restrictions related to the corporate practice of medicine and “Friendly PC” model, maximum debt‑to‑EBITDA requirements for transactions involving providers or provider organizations, and bond requirements for private equity investors.
Stakeholders are advised to closely monitor further guidance and regulations that may be issued by Massachusetts authorities, and should continue to follow Proskauer’s Health Care Law Brief for continuing developments in this space.
Relevant Definitions

“Health care real estate investment trust” means a real estate investment trust, as defined by 26 U.S.C. section 856, whose assets consist of real property held in connection with the use or operations of a provider or provider organization.
“Non‑hospital provider organization” means a provider organization required to register under section 11 of the Bill that is: (i) a non‑hospital‑based physician practice with not less than $500,000,000 in annual gross patient service revenue; (ii) a clinical laboratory; (iii) an imaging facility; or (iv) a network of affiliated urgent care centers.
“Private equity company” means any company that collects capital investments from individuals or entities and purchases, as a parent company or through another entity that the company completely or partially owns or controls, a direct or indirect ownership share of a provider, provider organization, or management services organization; provided, however, that “private equity company” shall not include venture capital firms exclusively funding startups or other early‑stage businesses.
“Significant equity investor” means (i) any private equity company with a financial interest in a provider, provider organization, or management services organization; or (ii) an investor, group of investors, or other entity with a direct or indirect possession of equity in the capital, stock, or profits totaling more than 10% of a provider, provider organization, or management services organization; provided, however, that “significant equity investor” shall not include venture capital firms exclusively funding startups or other early‑stage businesses.
“Ownership or investment interest” means any: (1) direct or indirect possession of equity in the capital, stock, or profits totaling more than 10% of an entity; (2) interest held by an investor or group of investors who engages in the raising or returning of capital, and who invests, develops, or disposes of specified assets; or (3) interest held by a pool of funds by investors, including a pool of funds managed or controlled by private limited partnerships, if those investors or the management of that pool or private limited partnership employ investment strategies of any kind to earn a return on that pool of funds.

[1] Bill, Section 24.
[2] Bill, Section 42.
[3] Bill, Section 43.
[4] Bill, Section 24.
[5] Bill, Section 29.
[6] Bill, Section 49.
[7] Bill, Section 64
[8] See National Health Planning and Resources Development Act of 1974 (P.L. 93‑641).
[9] See, e.g., National Conference of State Legislatures, Certificate of Need State Laws, available at: https://www.ncsl.org/health/certificate‑of‑need‑state‑laws.
[10] Commonwealth of Massachusetts, Senate Press Room, Legislature Passes Major Health Care Oversight Legislation, Regulates Private Equity (Dec. 30, 2024), available at: https://malegislature.gov/PressRoom/Detail?pressReleaseId=164.
[11] See Bill, Section 24.

NO MORE CITY SALES TAX ON RESIDENTIAL RENTALS!

Beginning January 1, 2025, Arizona lessors will no longer be required to collect and remit city Transaction Privilege Tax (TPT) on residential rentals. Senate Bill 1131, Chapter 204, Laws 2023 amended Ariz. Rev. Stat. Ann. § 42-6004, which precludes cities from taxing residential rentals. This preclusion does not apply to health care facilities, long-term care facilities, or hotel, motel or other transient lodging businesses
What Is Changing?Under prior law, most cities taxed residential long term (30 days or more) rentals with rates varying depending on the local jurisdiction. This law standardizes and simplifies the tax landscape by prohibiting the imposition of TPT on residential rental income statewide, as residential rentals were already excluded from state and county TPT.
Who Is Affected?• Property owners currently paying TPT on residential rentals in cities and towns that taxed residential rentals.• Tenants should also see a reduction in overall costs as landlords can no longer pass the tax through to their tenants. What Does This Mean for Property Owners?After January 1, 2025, property owners will no longer be required to collect and remit TPT on residential rentals. Property owners should continue to collect and remit municipal TPT on residential rentals through December 31, 2024. If property owners are charging residential tenants for the cost of the TPT, this practice must stop on January 1, 2025.
Next Steps for Property Owners• Review current compliance requirements and ensure that all TPT filings and payments for 2024 are accurate and up to date.• Prepare for the transition by updating lease agreements, billing systems, and accounting practices to remove TPT charges passed through to tenants effective January 1, 2025.• Notify tenants of any changes in rent amounts, if applicable.
What to Expect from the ADORThe Arizona Department of Revenue will automatically cancel all TPT licenses that exclusively list Business Code 045 (Residential Rental) on the account. For licenses with other business activity codes, the residential rental code will be removed, but other business codes will remain active. Property owners do not need to take any action to close or cancel these TPT licenses. However, the cancellation of TPT licenses and/or business codes does not relieve taxpayers of any outstanding tax liabilities or filing obligations for periods before January 1, 2025. 

Property Tax Legislation and Court Decisions
LEGISLATION1
Property Tax on Destroyed Property Must be Prorated (Laws 2024, chapter 34)County assessors are required to prorate the value of properties destroyed after they were valued for the year and county treasurers are required to prorate the tax bills.
Property Tax Refunds for Expenses to Mitigate Effects of Illegal Camping and Loitering (HCR 2023-2024)The Arizona Legislature authorized putting to the voters at the 2024 November general election, the approval of a law that would provide for city and county (when property is located in unincorporated county area) property tax refunds to owners who have incurred expenses to mitigate the effects of illegal camping, loitering, panhandling, public consumption of alcoholic beverages or the use of illegal drugs on their property when a city or county adopts or follows a policy declining to enforce such laws. The refund is limited to the city or county portion of the property tax paid (and does not include school taxes). This measure was approved by the voters, to begin in 2025. The purpose of this measure was to force cities and counties to enforce existing laws against camping, loitering, etc.
Taxpayers Are Entitled to Receive the Equity in their Property When Sold for Delinquent Taxes (Laws 2024, chapter 176)When a property is sold for delinquent property tax, the owner is entitled to request that the equity in their property over and above the delinquent tax amount be refunded to them rather than just losing their property in an action to foreclose.
Valuation of Golf Courses (Laws 2024, chapter 8). Golf course land is valued at $500 per acre, fairways and tees are valued based on the Department’s per hole cost, and improvements like clubhouses and other structures are valued based on replacement cost new, less depreciation. To obtain this favorable valuation treatment, the owner of the golf course must record a deed restriction that restricts the use of the property as a golf course for at least 10 years. This legislation provides that to continue to be valued as a golf course, the deed restriction must be refiled when the properties are split or combined. It also requires the owner to notify the county assessor within 30 days of converting any portion of the property to a different use.
Military Reuse Zone Status Renewed for Phoenix-Mesa Gateway Airport (House Joint Resolution 2001). Phoenix-Mesa Gateway Airport was formerly Williams Air Force Base and its status as a military reuse zone was renewed through October 19, 2031. There are both TPT and property tax incentives available for military reuse zones. 
Department of Revenue Now Has Responsibility for Military Reuse Zones Laws 2024, chapter 43). The responsibility for designating military reuse zones and certifying taxpayers’ eligibility for military reuse zone incentives is transferred from the Arizona Commerce Authority to the Department of Revenue.
COURT DECISIONS
Mesquite Power, LLC v. ADOR, 2024 Ariz. LEXIS 179 (2024). Income From Power Purchase Agreement Is to Be Taken into Account when Valuing Electric Generation Plant.
While there is a statutory method the value electric generation plants (basically a cost approach), the statutory value cannot exceed its fair market value. Mesquite argued that the statutory value was indeed higher than the plant’s fair market value because the statutory value included the value of a power purchase agreement. Mesquite’s position was that the power purchase agreement was an intangible and under Arizona law intangibles cannot be taxed. The Arizona Supreme Court though observed that the power purchase agreement itself was not being valued but rather under an income approach, the income from that contract should be considered when valuing the plant and remanded to the Arizona Tax Court so the owner’s appraiser could recalculate the value of the facility taking the income from the power purchase agreement into consideration.
Agua Caliente Solar, LLC v. Arizona Dep’t of Revenue, 257 Ariz. 437 (Ct. App. 2024). Full Amount of ITC Attributable to Solar Plant Is to Be Used to Reduce the Plant’s “Original Cost” Although the Credits Had Not Yet Been Utilized. 
Solar Generation Facilities are valued at 20% of their “original cost” with a reduction for the value of any investment tax credits applicable to the plant. Aqua Caliente though was not able to utilize the full amount of the ITC on its federal income tax return because it didn’t have sufficient taxable income to absorb the ITC. The Department took the position that since Aqua Caliente did not utilize the ITC, it was not entitled to use it to reduce the plant’s original cost. The Arizona Court of Appeals held that the value should be reduced by the value of federal investment tax credits not yet utilized.
South. Point Energy Ctr. LLC v. Arizona Dep’t of Revenue, 257 Ariz. 189 (Ct. App. 2024). Power Plant on Indian Reservation Subject to Property Tax.
South Point owned an electric generation plant located on the Fort Mohave Indian Reservation in northwest Arizona. The land was leased from the Indian Tribe under a ground lease approved by the BIA. South Point built the plant and owned it, but the Tribe owned the underlying land. South Point argued that under the 9th Circuit Court of Appeals decision in the Chehalis case, the state and county could not impose property tax on the plant because it became a permanent improvement to the land owned by the Tribe and Tribal property cannot be taxed. The Arizona Supreme Court in a prior decision refused to apply the Chehalis case and remanded to the Court of Appeals to consider an additional argument that under the Bracker balancing test, the state cannot tax the plant. In this decision, the Arizona Court of Appeals held that under Bracker, the plant was also subject to property tax because the: (1) extent of the federal and tribal regulations did not weigh in favor of implied federal preemption, (2) economic burden of the tax fell on the lessee rather than on the tribe, and (3) taxes were not impliedly preempted by federal law because the state had substantial interests that justified the tax.
San Diego Gas & Elec. Co. v. ADOR, 256 Ariz. 344 (App. 2023). (Review granted by Arizona Supreme Court.) Statutory Value for Electric Transmission Property Cannot be a Negative Value.
Electric transmission facilities are valued using a statutory cost approach with a reduction for accumulated depreciation. As a part of Federal Energy Regulatory Commission regulations, electric utilities must include as a part of accumulated depreciation, the future cost of removing the transmission lines. San Diego Gas & Electric included the accumulated cost of decommissioning, which reduced the statutory formula value below zero and used the negative amount to reduce the value of construction work in progress. the Court of Appeals held that the full cash value includes the accumulated depreciation of the future cost of removal but that the full cash value cannot be a negative value and that the negative amount cannot be used to reduce the value of construction work in progress.
Sales and Use Tax Legislation and Court Decisions
2024 LEGISLATION
Senate Bill 1370, Chapter 237. Youth Businesses (Lemonade Stands) Don’t Need Sales Tax Licenses. Persons under 19 no longer need a transaction privilege (sales) tax (TPT) license if their gross receipts don’t exceed $10,000 per year.
Senate Bill 2382, Chapter 142. Department of Revenue to Certify Third Parties for Sourcing City and County Transaction Privilege Tax (TPT). The Department of Revenue is required to certify third-party companies to provide sourcing services for purposes of sourcing city and county TPT by January 1, 2028 (extended from January 1, 2026 by House Bill 2909, below). Taxpayers that use certified sourcing services will not be liable for any additional tax due to sourcing errors.
House Bill 2875, Chapter 44, Electronic Funds Payments Deemed to be Made When Authorized. Taxpayers’ electronic funds payments will be deemed to be made on the date and at a time when the taxpayer successfully authorized an electronic funds transfer. The transfer must be evidenced by e-payment confirmation from their financial institution.
House Bill 2380, Chapter 33, Cities Can’t Audit Taxpayer Engaged in Business in More than One City, Unified Audit Committee Must Publish City Audit Guidelines. This legislation prohibits a city from auditing a taxpayer engaged in business in more than one city or town unless that city obtained prior approval from the Department. This bill also requires the Unified Audit Committee (composed of representatives from cities and the Department of Revenue) to publish uniform audit guidelines applicable to all cities and towns.
House Joint Resolution 2001, Military Reuse Zone Status Renewed for Phoenix-Mesa Gateway Airport. Phoenix-Mesa Gateway Airport was formerly Williams Air Force Base and its status as a military reuse zone was renewed through October 19, 2031. There are both TPT and property tax incentives available for military reuse zones.
House Bill 2634, Chapter 43, Department of Revenue Now Has Responsibility for Military Reuse Zones. The responsibility for designating military reuse zones and certifying taxpayers’ eligibility for military reuse zone incentives is transferred from the Arizona Commerce Authority to the Department of Revenue.
House Bill 2909, Chapter 221, Extended Third-Party Sourcing Date and Extends Exemption for Qualifying Forest Products Equipment. In order to give the Department of Revenue more time to certify third parties for sourcing city and county TPT, this bill extended the date from January 1, 2026 to January 1, 2028. Also extended the sales and use tax exemptions for the purchase of harvesting or processing qualifying forest products equipment through December 31, 2026. This bill was passed with an emergency clause, so it went into effect on June 18, 2024 when signed by Governor Hobbs.
COURT DECISIONS
9W Halo Opco, LP v. ADOR, No. 1 CA-TX 23-0003 (11-7-2024). Laundry Rental Business Not Engaged in Processing; Machinery and Equipment Used in Laundry Operations Not Exempt M&E. Taxpayer launders and sanitizes textiles (sheets, etc.) and rents them to entities in the healthcare industry. Taxpayer sought a refund of use tax paid on their purchases of the laundry equipment used in their laundry and sanitization activities. The Department of Revenue denied the refund claim and the taxpayer appealed. The Court reasoned that the term “processing” as is commonly understood within its ordinary meaning does not fall within the meaning of processing. In denying the taxpayer’s claim for refund, the Court relied upon the definition of “processing” contained in Moore v. Farmers Mut. Mfg. & Ginning Co., 51 Ariz. 378 (1938), which stated: “to subject (especially raw material) to a process of manufacturing, development, preparation for market, etc.; to convert into marketable form, as livestock by slaughtering, grain by milling, cotton by spinning, milk by pasteurizing, fruits and vegetables by sorting and repacking.”RockAuto, LLC v. Ariz. Dept. of Revenue (App 2024) (petition for review to Arizona Supreme Court pending); In-State Distributors Provided Nexus for Sales Tax Collection.
RockAuto is an internet seller of auto parts throughout the United States. It used local distributors to fulfill their internet orders. It had no physical presence in Arizona but had local distributors in the state that fulfilled RockAuto’s orders for orders to be shipped to Arizona customers. The Court of Appeals found that the local Arizona distributors acted on RockAuto’s behalf and constituted the sufficient physical presence requiring RockAuto to collect and remit the Arizona sales tax. It should be noted that the years at issue in this case were prior to Arizona’s adoption of economic nexus, so that the applicable test used in this case was “physical presence.”Dove Mountain Hotelco, LLC v. Arizona Dep’t of Revenue, 257 Ariz. 366 (2024). Compensation Received from a Hotel Rewards Program for Complimentary Stays is Subject to TPT. Marriott, as most hotels, has a loyalty marketing program that Dove Mountain, a Marriott branded hotel, participated in. The Marriott rewards program was administered by Marriott Rewards, LLC. When a guest would use points for a complimentary stay at Dove Mountain, Marriot Rewards would compensate Dove Mountain. The issue is whether that compensation was subject to the transaction privilege tax under the hotel classification. The Arizona Supreme Court held that the compensation for the complimentary stays was taxable.
 City of Tucson v. Orbitz Worldwide, Inc., No. 1 CA-TX 23-0001, 2024 WL 123640 (Ariz. Ct. App. Jan. 11, 2024). (Memorandum decision. Review denied by Arizona Supreme Court.) Orbitz is Not an “Operator” of Hotels.
Tucson has an occupational license tax on persons that “operate or cause to be operated a hotel.” Tucson assessed Orbitz for that tax, but the Court of Appeals held that Orbitz was not subject to the tax because it did not operate or cause hotels to be operated.
Income Tax Legislation
Senate Bill 1358, Chapter 55. Can Request Arizona Withholding on Distributions from Pension and Retirement Accounts. A recipient of a distribution from a pension or retirement account may request that Arizona income tax be withheld and the distribution is treated as if it were a payment of wages by an employee for a payroll period.
House Bill 2379, Chapter 7. Internal Revenue Code Conformity. This is the annual bill that conforms the Arizona income tax statutes to the Internal Revenue Code as amended and in effect as of January 1, 2024. According to the Arizona Department of Revenue, there is no anticipated fiscal impact to the state General Fund since no enacted federal acts modified the U.S. IRC in 2023.
House Bill 2875, Chapter 44, Electronic Funds Payments Deemed to be Made When Authorized. Taxpayers’ electronic funds payments will be deemed to be made on the date and at a time when the taxpayer successfully authorized an electronic funds transfer. The transfer must be evidenced by e-payment confirmation from their financial institution.
House Bill 2909, Chapter 221. Caps Corporate Tuition Tax Credit at $135 Million Annually, Eliminated Inflation Adjusted Increase. Caps the aggregate dollar level of the Corporate Low Income Student Tuition Tax Credit at $135 million annually, beginning in FY25. Previously, the aggregate cap was $10 million to be increased annually 2020 through 2024 by set percentages and thereafter by the greater of 2% or the percentage of the annual increase in the Metro Phoenix consumer price index.
Other Tax Legislation
Senate Bill 1636, Chapter 242. Expands Definition of Jet Fuel. An excise tax is imposed on the retail sale of jet fuel. Jet fuel was previously defined based on reference to “crude oil.” This definition is expanded to include (a) aviation turbine fuel that consists of conventional and synthetic blending components that can be used without the need to modify aircraft engines and existing fuel distribution infrastructure; and b) jet fuels derived from coprocessed feedstocks at a conventional petroleum refinery.
House Bill 2909, Chapter 221. Department Can Assess and Collect Fees from Cities, Counties and Other Governmental Bodies to Pay for Department’s Tax System Modification. Provides that the amount to be charged to counties, cities, towns, Council of Governments and regional transportation authorities with a population greater than 800,000 for the Integrated Tax System Project, may not exceed $6,626,900 for FY25.
Allows Property Tax Districts to Issue Tax Anticipation Notes to Cover Qasimyar Refunds. Taxing jurisdictions, including school districts, that are liable for tax refunds in the Qasimyar v. Maricopa County litigation where the refunds would result in a property tax increase of 4% or more may issue tax anticipation notes that mature in four years to pay the refunds.