Mass. Appeals Court Clarifies Chapter 93A Violations in Landlord-Tenant Dispute
The Appeals Court of Massachusetts recently took up another summary process action concerning landlord-tenant rights and Chapter 93A violations in Hayastan Indus., Inc. v. Guz. In a summary decision[1], the court affirmed a liability finding against a landlord for Chapter 93A violations under several distinct theories.
Plaintiff, a corporate entity, purchased a manufactured home and the lot it resided on from the bank after defendants defaulted on their loan. Plaintiff then brought a summary process action in the Housing Court to take possession of the manufactured home, and the tenants counter-claimed for Chapter 93A violations. The Housing Court entered judgment dismissing plaintiff’s claim for possession of the manufactured home and found plaintiff violated Chapter 93A.
The Appeals Court agreed that the Housing Court erred in concluding that the 30-day notice to quit delivered to the tenants without cause violated the M.G.L. c. 140, § 32J requirement, which is designed to protect owners of manufactured homes. At the time of the notice to quit, the tenants no longer owned the manufactured home and were no longer entitled to the statute’s protections. Thus, the Housing Court erred in dismissing the possession claim based on a M.G.L. c. 140, § 32J violation and in finding a Chapter 93A violation based on this statutory violation.
The Appeals Court further determined, however, that the Housing Court did not err when it concluded that an April 27, 2020, letter plaintiff sent to the tenants violated the Massachusetts eviction moratorium during the COVID-19 pandemic. While the letter did violate the eviction moratorium, the Appeals Court disagreed with the Housing Court that this technical violation was a “serious interference” with a tenancy such that it violated Massachusetts’ quiet enjoyment statute. The Housing Court therefore vacated that ruling and the damages awarded on this claim. This issue was remanded to the Housing Court for the limited purpose of determining whether the technical violation of the eviction moratorium caused the tenants a loss as required to recover under G.L. c. 93A.
Finally, the Appeals Court did not believe the judge erred in finding a violation of Chapter 93A due to plaintiff’s inclusion of lot fees in the summary process complaint, when such fees had previously been adjudicated by the Housing Court not to be owed by the tenants. The Housing Court found that plaintiff “commenced eviction proceedings approximately nine days after purchasing the home because it intended to make repairs and put it on the market for sale,” which supported the conclusion that the notice to quit was motivated by business reasons. These “business reasons” amounted to conduct in trade or commerce for the purposes of Chapter 93A. The Housing Court found, and the Appeals Court agreed, that even though the summary process complaint was amended to remove the demand for lot fees, the elements of c. 93A were still met at the time the summary process complaint was served. Thus, the demand for invalidated lot fees amounted to an unfair or deceptive business practice, which caused defendant to suffer an emotional injury in the form of lost sleep and anxiety. The Appeals Court noted that the failure of the company to apprise itself of the legal effect of the pending appeal did not amount to the sort of negligence that precludes liability under G.L. c. 93A.
The Appeals Court decision on the final issue seems to run contrary to established law that petitioning activity is typically immune from Chapter 93A liability.[2] It does not appear that plaintiff’s petitioning activity was frivolous or designed to frustrate competition.[3] Rather, plaintiff sought to take possession of a property it recently purchased through a summary process complaint and amended the complaint to remove the demand for lot fees it was not owed prior to actual litigation on the issue. This case highlights what appears to be a trend at the trial court level to expand the scope of Chapter 93A liability.
[1] A summary decision is a decision primarily directed to the parties and represent only the views of the panel that decide the case. It may be cited for its persuasive value but is not binding precedent.
[2] See Morrison v. Toys “R” Us, Inc., 441 Mass. 451, 457 (2004) (Chapter 93A “has never been read so broadly as to establish an independent remedy for unfair or deceptive dealings in the context of litigation, with the statutory exception as to those ‘engaged in the business of insurance’”).
[3] See Bristol Asphalt Co., Inc. v. Rochester Bituminous Products, Inc., 493 Mass. 539 (2024).
Boston Accelerates Net Zero Carbon
Last week, the Boston Zoning Commission adopted Net Zero Carbon (NZC) zoning. As addressed in our 2021 and 2023 advisories, this completes a three-part decarbonization strategy, along with the Specialized Energy Code and the Boston Emissions Reduction and Disclosure Ordinance (BERDO 2.0).
NZC requires carbon neutrality for new buildings of at least 20,000 square feet or 15 dwelling units, or additions of at least 50,000 square feet, that file for Large Project Review or Small Project Review on or after July 1, 2025. It will not apply to renovations or changes of use. It requires carbon neutrality once new buildings become operational, with exceptions for lab use (until 2035), and hospital and general manufacturing uses (until 2045).
Here is how NZC interrelates to the other prongs:
The Specialized Energy Code, adopted by Boston in 2023, provides stricter energy efficiency requirements than the frequently iterated Stretch Energy Code, which in turn exceeds the Massachusetts Base Energy Code. The Boston Planning Department estimates that the 2023 Specialized Code may have halved greenhouse gas emissions from new buildings compared to the version of the Stretch Code in effect when Boston’s 2019 Climate Action Plan was adopted. NZC is intended to address the remaining half for new construction.
BERDO 2.0 also targets carbon neutrality, but for covered buildings that already exist (i.e., containing at least 20,000 square feet or 15 dwelling units), phased in to 2050. Emissions levels must decrease every 5 years following a prescribed schedule unless the Emissions Review Board approves an alternative compliance pathway. The Planning Department estimates that 70% of covered existing buildings will have to take steps to comply with emissions reduction requirements by the first milestone in 2030.
NZC compliance will be assessed through Article 80B Large Project Review or Article 80E Small Project Review based on Planning Department review of a project’s already required Leadership in Energy and Environmental Design (LEED) scorecard, together with a new Greenhouse Gas Emissions checklist. Projects with at least 50,000 square feet will also submit a new structural life cycle analysis addressing embodied carbon emissions from fabrication, transportation, demolition disposal, construction materials, and the like. After becoming operational, the new building becomes an existing building subject to, but presumably already compliant with, BERDO 2.0.
Maine is Ready for Energy Storage. Are Energy Storage Developers Ready for Maine?
Maine has statutory goals for energy storage projects – 300 megawatts by the end of this year and 400 megawatts by the end of 2030. To help reach those goals, the state is beginning the process of developing and evaluating an energy storage procurement program for up to 200 megawatts of cost-effective energy storage in Maine. Companies interested in participating in any procurement program that Maine adopts should start the initial development process early to allow sufficient time to address some potential local zoning challenges that they may face.
In 2023, the Maine Legislature passed An Act Relating to Energy Storage and the State’s Energy Goals, which directed the Governor’s Energy Office, in consultation with the Maine Public Utilities Commission (Commission), to evaluate designs for a program to procure commercially available utility-scale energy storage systems connected to the state’s transmission and distribution systems.
The Commission is now reviewing a recommendation from the Energy Office for a program to procure up to 200 megawatts of cost-effective energy storage for Maine that increases grid resilience, lowers electricity costs, maximizes federal incentives, and advances Maine’s clean energy goals and statutory requirements. While it is not yet clear what process the Commission will undertake to design and implement a storage procurement program, it is reasonable to expect that this program will be offered before Governor Mills’ term ends in two years.
One of the major challenges for energy storage projects in other states has been local governments enacting zoning bylaws that preclude construction of battery energy storage facilities. These zoning bylaws are often inconsistent with a state’s renewable energy goals. Some states, such as Massachusetts, allow for state exemption of local zoning bylaws if, among other reasons, the bylaw is not consistent with the public interest to meet renewable energy goals. See Pierce Atwood’s November 2024 alert on this subject.
Maine has a long-standing tradition of home rule, enshrined in the constitution, that allows municipalities to enact laws on any topic that is not prohibited to them by state or federal law.
This means that municipalities can adopt all types of zoning rules and other performance standards to regulate energy storage projects. This could include traditional zoning, by limiting where such projects can be located, as well as various standards related to, among other things, fire safety, noise, visual screening, and buffering.
Maine’s municipalities can also impose moratoria, which temporarily prevent planning boards and code enforcement officers from even processing, let alone approving, certain types of projects while the municipality enacts more stringent regulations to address the perceived impacts of the project.
So, what do energy storage project developers need to do about municipal permitting in Maine?
Because of home rule, the rules potentially vary in every one of Maine’s 488 municipalities. Developers need to analyze the permitting process in each municipality where they are considering siting a project. Some municipalities will naturally favor energy storage projects, while some will not. Key questions include:
How does the municipality classify energy storage as a use and where is it allowed? Many local zoning ordinances may not have contemplated energy storage as a type of use, and thus it is likely prohibited in many cases.
What are the dimensional standards, such as minimum lot size and setbacks, that apply to energy storage?
Are there separate performance standards that apply to energy storage? These might be in a variety of ordinances, such as zoning, site plan, subdivision, or other ordinances.
Is there a specific ordinance applicable to energy storage or renewable energy projects?
Has the municipality adopted a moratorium?
By statute, a municipality can stop project development if it determines that existing ordinances are inadequate to prevent serious public harm from development. Although this sounds like a high standard, in practice it isn’t, and it is often used to pause review of controversial projects, such as solar projects, while municipalities adopt stringent requirements to either prevent or restrict development.
Because of Maine’s unusual deference to municipal regulation, it is critical to understand that a moratorium can be imposed to stop development even after all permits for the project have been issued. This is because of Maine’s deferential view of vested rights, allowing changes in laws to apply retroactively more or less right up until the moment that actual construction begins.
At the same time, there are options for developers to explore, including.
Consider proposing amendments to the applicable ordinance in question to clarify how energy storage projects fit into the ordinances.
Pursue a contract zone agreement, whereby the municipality rezones the specific parcel in question to allow the proposed project. This is done through a contract, approved by the legislative body of the municipality, that often exacts a benefit from the developer in exchange for the favorable zoning treatment.
Consider proposing a bill to enact something akin to what Massachusetts did for energy storage projects – provide an exemption for local zoning from the Legislature to ensure localized interests do not unduly prevent the state from accomplishing its energy storage goals. (Maine already provides a local zoning exemption in 30-A M.R.S. § 4352(4) that primarily applies to transmission lines, but an entirely new statutory scheme would be needed in Maine to establish a local land use exemption for storage.)
As with any development project, in addition to permitting and regulatory issues, energy storage projects in Maine require expertise, diligence, and planning to address real estate, title, and tax issues.
Valuing Real Estate Assets in Bankruptcy: Ethical Considerations and Practical Insights
Real estate bankruptcies present intricate legal and ethical challenges, particularly concerning asset valuation. Accurate valuations are pivotal as they influence negotiations, creditor recoveries, and court proceedings. Ensuring that all parties—attorneys, lenders, property owners, and appraisers—adhere to ethical standards is crucial for maintaining transparency, fairness, and compliance within the bankruptcy process.
The Importance of Valuation in Real Estate Bankruptcy
David Levy, Managing Director for Keen-Summit Capital Partners and Summit Investment Management, notes that valuations play a pivotal role in bankruptcy cases, influencing everything from cash collateral motions to asset sales and plan confirmation. Whether dealing with declining or appreciating property values, parties must navigate competing interests and ethical obligations. Ethics in real estate bankruptcy encompasses adherence to professional obligations, legal requirements, and moral principles to ensure integrity in all dealings. Ethical lapses can lead to significant legal consequences, reputational damage, and financial losses.
Key Ethical Rules Relevant To Real Estate Bankruptcy
Robert Richards, chair of Dentons’ Global Restructuring, Insolvency and Bankruptcy practice group, emphasizes that attorneys and valuation professionals must adhere to the American Bar Association (ABA) Model Rules throughout the valuation process. Several ABA Model Rules are pertinent when navigating real estate bankruptcy cases, including:
Rule 1.3 (Diligence): Attorneys must act with reasonable diligence and promptness in representing their clients, ensuring that cases progress efficiently and clients’ interests are adequately pursued. This includes the proper investigation and verification of valuation reports.
Rule 3.3 (Candor Toward the Tribunal): Lawyers are required to ensure that all statements to the court are truthful and complete, avoiding material omissions that could mislead the tribunal. In bankruptcy valuations, attorneys are obligated to provide truthful information and avoid misrepresenting asset values.
Rule 3.4 (Fairness to Opposing Parties and Counsel): Attorneys must not unlawfully obstruct another party’s access to evidence or alter, destroy, or conceal material with potential evidentiary value. This requirement includes ensuring transparency and fairness when presenting valuation data in negotiations.
Rule 4.1 (Truthfulness in Statements to Others): In the course of representing a client, a lawyer shall not knowingly make a false statement of material fact or law to a third person.
Valuation Challenges in Bankruptcy Proceedings
Valuation plays a critical role in real estate bankruptcy cases, affecting negotiations, creditor recoveries, and court proceedings. A proper valuation framework helps determine whether secured creditors are adequately protected, ensures that distressed assets are sold at fair market value, and establishes creditor claims appropriately.
Common Valuation Methods
Several methods are used to determine real estate asset values in bankruptcy. Mark Silverman, a partner at Troutman Pepper Locke, highlights the two most common valuation approaches used in bankruptcy cases:
Appraisals: A professional opinion of value based on market trends, property conditions, and comparable sales.
Broker Opinion of Value (BOV): A more market-driven estimate from real estate brokers who understand local conditions.
Valuations should be supported by thorough documentation and clear methodologies to avoid challenges and ensure credibility.
Ethical Considerations in Valuation Practices
Real estate bankruptcies can present various ethical dilemmas related to valuation. Withholding material facts or misrepresenting valuations can lead to legal and reputational consequences. Overstating or understating property values to influence negotiations or court decisions can violate ethical guidelines and legal regulations. Professionals must also be cautious when representing multiple parties with potentially conflicting interests, ensuring that their duties remain aligned with ethical standards.
Transparency in Asset Valuation
Transparency is a fundamental principle in real estate bankruptcy proceedings. All stakeholders, including creditors, courts, and potential buyers, rely on accurate and complete information to make informed decisions. Ethical obligations require full disclosure of all material facts, including pending offers, financial conditions, and market trends. A lack of transparency can lead to mistrust, legal complications, and potential accusations of fraud.
Attorneys and financial advisors must ensure that their clients provide truthful and comprehensive disclosures. This includes being candid about property conditions, occupancy rates, and market comparables. Ethical rules such as ABA Model Rule 3.3 require attorneys to disclose any material information that may impact the court’s decision-making process. Failure to do so can result in sanctions and reputational damage.
Managing Conflicts of Interest
Avoiding conflicts of interest is a prevalent concern in real estate bankruptcy cases, particularly when professionals have relationships with multiple stakeholders. For example, an attorney representing a property owner may have financial ties to other business interests of the client, which could compromise their ability to provide objective advice.
Ethical guidelines emphasize the need for attorneys to avoid representing conflicting interests without full disclosure and informed consent. When conflicts arise, attorneys and financial advisors must take steps to address them appropriately. This may involve withdrawing from representation, seeking independent valuations, or ensuring that their recommendations align with the best interests of creditors and other stakeholders.
Manipulation of Valuation Data
Manipulating property valuation data is an ethical pitfall that can have severe legal and financial consequences. Stakeholders may be tempted to overstate property values to secure more favorable loan terms or misrepresent financial conditions to minimize creditor recoveries. Such practices violate ethical obligations and can lead to litigation or regulatory scrutiny.
Common tactics of valuation manipulation include using inappropriate comparables, omitting key expenses, and inflating projected income. Ethical compliance requires professionals to use reliable valuation methodologies, such as third-party appraisals, BOVs, and comparable sales analysis. ABA Model Rule 4.1 prohibits the making of false or misleading statements, emphasizing the need for honesty in all financial representations.
Regulatory Developments Impacting Valuation Practices
Recent regulatory developments have introduced additional considerations for ethical valuation practices:
Automated Valuation Models (AVMs): On June 24, 2024, six federal agencies finalized a rule to create safeguards for automated valuation models in the real estate industry. The rule requires companies that utilize AVMs to implement quality control standards to ensure data accuracy, protect against data manipulation, and prevent discriminatory impacts.
Addressing Discrimination in Appraisals: The Federal Financial Institutions Examination Council (FFIEC) has emphasized the importance of mitigating risks arising from potential discrimination or bias in real estate appraisals. Examiners are encouraged to evaluate appraisal practices to ensure compliance with consumer protection laws and promote credible valuations.
Best Practices for Ethical Compliance in Bankruptcy Valuation
Matt Christensen of Johnson May notes that adhering to best practices can ensure ethical and effective valuation processes. To navigate valuation challenges effectively, professionals involved in real estate bankruptcies should adhere to the following best practices:
Maintain Transparency: Ensure all stakeholders, including creditors and the court, have access to accurate and complete information.
Engage Independent Valuations: Avoid conflicts of interest by using reputable third-party appraisers or brokers.
Document Communications: Keep records of all discussions and disclosures to prevent disputes over what was shared.
Adhere to Fiduciary Responsibilities: Focus on acting in the best interests of creditors when insolvency is a factor.
Understand the Legal Implications: Legal counsel should stay updated on ethical obligations and ensure compliance with jurisdiction-specific rules.
Conclusion
Ethical considerations in real estate bankruptcy, particularly regarding asset valuation, are critical to fair and effective resolution processes. Whether representing borrowers, lenders, or stakeholders, professionals must ensure they act with integrity, transparency, and adherence to established legal and ethical guidelines.
To learn more about this topic view Valuing Real Estate Assets. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested to read other articles about real estate-focused bankruptcy cases.
This article was originally published on DailyDAC.
©2025. DailyDAC TM. This article is subject to the disclaimers found here.
Tax Information for Those Impacted by the Los Angeles County Wildfires
As a Los Angeles-based firm, we are deeply saddened by the devastation caused by the recent wildfires. We remain committed to supporting our clients and friends during this time and are hopeful that the general tax information outlined below may be helpful as those affected by the wildfires begin to consider plans to recover and rebuild.
On January 10, the IRS announced tax relief for individuals and businesses affected by the Los Angeles County wildfires, following the disaster declaration issued by FEMA. The governor announced relief related to California state taxes on January 11, and on January 14, 2025, it was announced that eligible property owners may qualify for property tax relief in Los Angeles County.
Extensions
The IRS and the California Franchise Tax Board (FTB) extended certain filing and payment deadlines falling on or after January 7, 2025 and before October 15, 2025, to October 15, 2025. For individuals and businesses with an IRS address of record located in Los Angeles County, the IRS will automatically provide relief. If a taxpayer resides outside of Los Angeles County but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area (for example, non-resident partners of Los Angeles partnerships), that taxpayer will need to contact the IRS disaster hotline at 866-562-5227 to request the extension.
The October 15, 2025 deadline applies to:
Individual income tax returns and payments normally due on April 15, 2025 (federal and state).
2024 contributions to IRAs and HSAs (and note, additional relief might be available in the form of special disaster distributions or hardship withdrawals; each plan or IRA has specific rules).
Quarterly payroll and excise tax returns normally due on Jan. 31, April 30, and July 31, 2025.
Calendar-year partnership and S corporation returns normally due on March 17, 2025 (federal) and PTE tax returns and elective tax payments normally due on March 15 and June 15, 2025 (state).
Calendar-year corporation and fiduciary returns and payments normally due on April 15, 2025 (federal and state).
Calendar-year tax-exempt organization returns normally due on May 15, 2025 (federal and state).
A 2024 estimated tax payment normally due on Jan. 15, 2025, and estimated tax payments normally due on April 15, June 16, and Sept. 15, 2025 (federal and state).
Certain other time-sensitive actions, including those related to Section 1031 exchanges, as discussed below.
Note that while an extension will prevent penalties as long as taxes are paid before the October 15 deadline, the extension does not prevent interest from accruing.
The IRS and the FTB also have provided affected taxpayers until Oct. 15, 2025, to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2018-58, including specific relief pertaining to like-kind exchanges of property (including for taxpayers who are not otherwise “affected taxpayers” under the general relief rule).
Finally, the California Department of Tax and Fee Administration (CDTFA) has granted a three-month extension on the ability to file and pay taxes or fees for various CDTFA-administered programs, including sales and use tax returns for certain taxpayers, as well as various programs related to natural resources.
Casualty Losses
Affected taxpayers will be able to claim fire-related casualty losses on their federal income tax return on either their current or prior year tax returns (i.e., a taxpayer can elect to treat the loss as offsetting its 2024 income). A casualty loss is typically limited to a tax basis, rather than fair market value, but taxpayers should carefully consider whether a casualty loss deduction makes sense for them, because it cannot be claimed if tax basis is expected to be reimbursed (e.g., through insurance or litigation proceeds). If any portion of a casualty loss deduction is reimbursed, a portion of the reimbursement will be treated as ordinary income (and not eligible for deferral).
For California state tax purposes, taxpayers can only take a casualty loss to the extent it exceeds 10% of adjusted gross income. It is unclear at this time whether a federal law signed at the end of last year will apply to these wildfires, eliminating this 10% adjusted gross income requirement for federal tax purposes.
For property tax purposes, taxpayers may be entitled to both a deferral of payment and monetary relief for property taxes already paid and future property taxes as a result of property being damaged or destroyed. The relevant forms are available on the Los Angeles County website under “Misfortune or Calamity,” linked here for convenience.
Insurance Proceeds and Casualty Gain
Certain insurance proceeds resulting from federally declared disasters (such as certain proceeds for temporary living expenses or personal property, in either case, resulting from a loss of principal residence) can be received tax-free. However, other insurance proceeds may be treated as sales proceeds, resulting first in a reduction in basis of one’s property and beyond that, taxable gain (a “casualty gain”). For the loss of a principal residence, to the extent a taxpayer has casualty gain, up to $250,000 for single taxpayers and $500,000 for married taxpayers can be excluded from income.
Tax-Deferred Exchanges
Taxpayers, including businesses, may be able to defer gain under Section 1031, Section 1033 or possibly both.
Section 1033 allows tax deferral when a taxpayer’s property has been involuntarily converted, including in circumstances involving a federally declared disaster. An election under Section 1033 can allow indefinite deferral on casualty gain. However, the rules relating to involuntary conversions, including the deadlines, can be complex. For example, for a principal residence, the casualty gain must be reinvested within 4 years of the first year in which casualty gain was realized. In many circumstances, a taxpayer can receive insurance proceeds and sell underlying land and use all of the proceeds as part of a Section 1033 exchange.
In certain circumstances, taxpayers may determine utilizing Section 1031 makes more sense, which allows for similar tax deferral. Generally speaking, Section 1031 is more limited as it is only available to taxpayers that hold their real property for use in a trade or business or for investment, and proceeds received as part of a Section 1031 exchange must be reinvested within six months.
Property Tax Relief
For any taxpayer that has had their property destroyed or damaged and decides to rebuild, the rebuilding will not cause an additional “new construction” assessment provided that the property after reconstruction is “substantially equivalent” to the property prior to the damage or destruction. Any reconstruction of real property, or portion thereof, that is not substantially equivalent to the damaged or destroyed property, shall be deemed new construction and only that portion that exceeds substantially equivalent reconstruction shall be newly assessed.
Similarly, any taxpayer that has had their property substantially damaged or destroyed by the fire may transfer their base-year value to a comparable property within the same county, which comparable new property must be acquired or newly constructed within five years after the disaster. Replacement property is comparable to the property damaged or destroyed if it is similar in size, utility, and function to the property which it replaces. As long as the replacement property is not worth more than 120 percent of the value of the damaged or destroyed property (immediately prior to the disaster), the base value will transfer with no adjustments. If the replacement property costs more than 120 percent of the value of the damaged or destroyed property, then the excess will be added to the base-year value.
For taxpayers who had their principal residence damaged or destroyed by the wildfire, they may transfer their base-year value to a replacement dwelling anywhere in California that is purchased or newly constructed by that person as their principal residence within two years of the sale of the original property.
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).