At least 22 states have enacted laws since the start of last year restricting and, in some cases, barring foreign investment in US farm land and in projects considered critical infrastructure.

These state laws build on existing federal statutes. Federal law has required reporting foreign investments in US farm land since 1978. Some foreign investments may require review by a committee, comprised of representatives from nine federal agencies, called the Committee on Foreign Investment in the United States or "CFIUS" that was formed in 1975 and given expanded powers in 2018.

AFIDA

The federal government requires reporting of foreign investment in US farm land under the Agricultural Foreign Investment Disclosure Act of 1978.

Farm land is any land that was put to an agricultural use at any time in the last five years.

Congress enacted AFIDA in response to concerns that foreign ownership of farm land would increase food prices and threaten the long-term survival of family farms. The law created a comprehensive disclosure program in which persons or organizations qualifying as “foreign persons” must report any direct or indirect interests in farm land, including leasehold interests, to the Farm Service Agency, which is part of the US Department of Agriculture.

The FSA produces an annual report on foreign holdings of US agricultural land that is generated from AFIDA filings.

Four types of investors are considered foreign persons whose interests in farm land must be reported. They are (1) individuals who are not US citizens, (2) companies that are either formed under a foreign country law or that have their principal places of business outside the US, (3) foreign government entities, and (4) US entities in which a foreign person, government or entity has a significant interest or substantial control.

The AFIDA regulations define “significant interest or substantial control” as present in any of the following situations: (1) when a single foreign person, government or entity holds a 10% or greater direct or indirect interest in the project company, (2) when multiple foreign persons, governments or entities hold a 10% or greater direct or indirect interest in the aggregate and act in concert with respect to their interests, or (3) when multiple foreign persons, governments or entities hold an aggregate interest of 50% or more in the project company, regardless of coordination.

Interests in US farm land must be reported to the FSA within 90 days after the interests are acquired. The reports are filed on a form called FSA-153. Reporting is required only once, unless the interest changes, in which case the AFIDA filing must be updated within 90 days after such a change.

This is a potential issue in M&A transactions where interests in projects are sold to foreign investors.

The penalties for not reporting are discretionary based on how the violation was discovered (voluntary self-reporting or an FSA-discovered violation), length of noncompliance, extenuating circumstances and involvement of legal counsel. They are 25% of the fair market value of the interest for failing to report or false or misleading reporting, and 0.1% of the fair market value of the interest per week of noncompliance for late filing subject to a maximum of 25%.

The US project company that holds the real property interest in agricultural land must make the AFIDA filing.

More Details

The degree to which US companies must consider the “foreign” nature of their organizational structures is somewhat ambiguous.

AFIDA regulations do not address whether a foreign entity sitting atop multiple tiers of subsidiaries holds a “significant interest or substantial control” of a US entity that sits several tiers below.

Current FSA guidelines recommend that AFIDA filers focus on three tiers of ownership counting as one of the tiers the entity holding the interest in US land.

However, the FSA asked in the Federal Register last year for comments on a number of matters, including whether foreign ownership more than three tiers above the project company should require reporting and whether filers should also report the ultimate owner at the highest tier of ownership.

The FSA also asked for information about the effect of the AFIDA filing requirements on the wind and solar industries. The FSA is concerned that reporting foreign-held long-term wind site leases may overstate foreign energy company activity in the US, as filers are counting the entire acreage of a parcel rather than the final acreage needed for wind turbines. The concern was reflected in the 2022 AFIDA annual report, which noted that increased foreign ownership of pasture and cropland was mostly due to foreign-owned wind companies reporting long-term, high-acreage leasehold interests, but that the majority of this land is still being used for agricultural purposes because wind turbines are widely spaced and take up only part of the land.

The FSA also asked how solar panels should be treated for reporting purposes as they are “situated above the agricultural land,” suggesting that the FSA might consider agrivoltaics projects differently from traditional solar. The outcome of these requests for information has not been published, but could significantly alter how and when AFIDA filings are made in the future.  

An interest in real estate includes ownership of land (called a fee interest) and a lease 10 years or longer. Leasehold interests of less than 10 years, security interests, easements, mineral rights and contingent future interests (such as options) are among those real estate interests that are exempted from AFIDA filing.

Land is considered agricultural land only if it exceeds 10 acres in size or, if less than 10 acres, is used to earn more than $1,000 a year in gross receipts from sales of farm, ranch or timber products. It had to have been used for an agricultural purpose at any time during the past five years. Farming, ranching, viticulture, orchards, timber production or forestry production (if 10% or more of land is stocked with trees) are considered “agricultural purposes” under AFIDA. The agricultural status of real property is not lost if the land was re-zoned for non-agricultural use.

Foreign investors owned interests in approximately 43.4 million acres of US agricultural land in 2022, which represented an increase of over 3.4 million acres (or nearly 8%) from the prior year and amounts to roughly 3.4% of all privately held American agricultural land and nearly 2% of all land holdings. Of the total foreign-owned acreage, the FSA estimates that roughly 25% relates to wind projects and 3% relates to solar.

Federal lawmakers have introduced several bills to amend AFIDA to address fears of security risks to farmland and food supply chains. While not enacted, these bills propose changes to AFIDA’s reporting standards, accessibility of data and AFIDA’s penalty structure.

CFIUS

In addition to AFIDA, CFIUS has the power to recommend that transactions be blocked, but it cannot block them directly. Any such decision would be made by the US President. More often, where transactions present national security or other issues, the transaction terms end up being revised.  

CFIUS's jurisdiction was traditionally limited to reviewing transactions involving foreign persons obtaining “control” over US businesses. That jurisdiction was expanded in 2018 under the Foreign Investment Risk Review Modernization Act to allow CFIUS to review the purchase, lease or concession of real estate located within specified distances of sensitive areas like airports, maritime ports, military installations and certain other government facilities.

While proximity to sensitive facilities had long been a factor in CFIUS reviews of transactions involving transfers of controlling interests in US businesses, until FIRRMA, CFIUS lacked the ability to review proximity to sensitive locations in transactions involving bare real estate.

Significantly, transactions involving investments in real estate in “urbanized areas,” meaning statistical geographic areas that are densely settled with at least 50,000 individuals, are exempted from CFIUS jurisdiction even if the real estate is near a sensitive government facility.

To trigger CFIUS jurisdiction, a transaction involving real estate near a sensitive government site must afford the foreign person at least three of four qualifying property rights. The four are the rights to have physical access to the property, exclude others from physical access, improve or develop the property, and attach fixed or immovable structures or objects to the property.

Unlike for transactions involving acquisitions of controlling interests in US businesses, there are no mandatory filing requirements for pure real estate transactions. All notifications to CFIUS for such transactions are voluntary.

While the expansion of CFIUS oversight into real estate transactions was a significant change in the committee’s jurisdiction, the committee's jurisdiction remains limited to transactions that involve businesses or real estate that is near military bases or other sensitive government sites.

For example, CFIUS was forced to conclude that it lacked jurisdiction over a Chinese food manufacturer’s purchase of 370 acres in Grand Forks, North Dakota, 12 miles from a US Air Force base. At the time the decision was made, the land was not close enough to the Air Force base to confer CFIUS jurisdiction to review the real estate purchase. Nevertheless, the Grand Forks City Council ultimately denied the manufacturer, Fufeng Group, the right to build its facility. Public outcry around CFIUS’s decision to decline jurisdiction may have hastened state-level restrictions.

Partly in response to the North Dakota case, CFIUS adopted new rules on November 1, 2024 that significantly expand its ability to review certain real estate transactions by foreign persons near an additional 60 military bases and installations across 30 states.

Recent State Laws

A number of recent state laws prohibit or severely restrict foreign ownership of real property interests.

The Congressional Research Service reports that 22 states have passed laws regulating foreign ownership of land and infrastructure since January 2023. Several more states saw similar bills introduced by lawmakers.

While the legislation varies by state, key themes include restrictions on foreign real estate interests in agricultural land, limits on foreign control of critical infrastructure (including power plants), and restrictions on investments from certain countries.

A number of new state laws prohibit foreign entities from acquiring interests in land deemed “agricultural.”  

The type of restricted interest (fee versus leasehold) and the definition of “agricultural” varies by state. Some state laws (like Florida’s SB 264, for example), define “agricultural” using a multi-factor analysis that considers continuity, length of agricultural use and implementation of accepted commercial agricultural practices.

Other states, like Ohio and Virginia, define “agricultural” with lengthy lists of different forms of animal husbandry and plant cultivation. Some states have taken foreign land ownership restrictions a step further by enacting limits on foreign ownership of all real property, regardless of agricultural status. Examples include Louisiana and Oklahoma, with each defining “foreign” differently.

While many of the new state laws restrict only fee ownership of real estate by a foreign entity, others (including Arkansas, Indiana, Louisiana and Montana) place restrictions on leasehold rights as well.

North Dakota enacted two bills in 2023 restricting foreign interests in agricultural land. House Bill 1135, which went into effect in August 2023, prohibits any noncitizen from directly or indirectly acquiring any interest in agricultural land in the state unless specific standards are met (including a limitation on the number of acres in which an interest can be held). Senate Bill 2371, which also became effective in August 2023, restricts foreign governments (and businesses controlled by foreign governments) from buying agricultural land in North Dakota. The bills were enacted in reaction to the decision by CFIUS to decline jurisdiction over the Grand Forks Fufeng real estate transaction. Lawmakers cited the Fufeng decision as the impetus for stricter laws prohibiting foreign investment in state agricultural resources.

Some states prohibit foreign investment in or control over critical infrastructure.

Alabama, Indiana and Montana each passed laws in 2023 to ensure that American entities will have exclusive access, control and ownership of certain critical infrastructure located within those states. All three states define “critical infrastructure” as including facilities related to electricity generation, transmission and distribution.

The Texas Lone Star Infrastructure Protection Act of 2021 prohibits business entities from signing contracts with foreign companies that grant such companies direct access to or control of critical infrastructure in Texas. In a public letter to the bill’s author, State Senator Donna Campbell, the Texas attorney general interpreted this restriction as prohibiting foreign entities from entering into interconnection agreements within the state.

Whether an individual or organization qualifies as “foreign” under state law varies considerably.

Many states designate some combination of China, Iran, North Korea, Russia, Cuba, Venezuela and Syria as countries of concern and restrict real estate ownership based upon an entity’s connections to that country. Others, like Utah, Virginia and Tennessee, either rely on the list of countries currently under sanctions by the United States government or use the federal regulatory definition of “foreign adversary.”  Specifically, these states refer to a US Department of Commerce regulation that lists six countries as “foreign adversaries”: the People’s Republic of China, the Republic of Cuba, the Islamic Republic of Iran, the Democratic People’s Republic of Korea, the Russian Federation and Nicolas Maduro’s political regime in Venezuela.

Ownership or direct control by (or being domiciled or headquartered in) a country of concern satisfies the requirement for “foreign” status under several state statutes. A few laws go further, including those in Arkansas and Texas, by covering US companies with percentages of foreign ownership that fall short of control. Several states also provide their governors with discretionary authority to designate additional countries of concern for which real estate and infrastructure ownership is restricted.

Some state laws restricting foreign investment directly target such investment in renewable energy.

The Lone Star Infrastructure Protection Act was enacted specifically to target the development of a Chinese-owned wind project in Val Verde County, Texas. Legislators feared that the company could tamper with the Texas energy grid’s reliability, or even shut it down, if provided access through its development of the Val Verde project.

Wind and solar projects, which tend to be built on agricultural land, are considered critical infrastructure under most of the new state laws. Project developers with foreign owners from targeted countries thus may be prohibited from acquiring the necessary real estate rights to construct wind and solar projects.