Updates on Florida Law Restricting Foreign Ownership of Real Property: Proposed Rules and Shen v. Simpson

SB 264 (Chapter No. 2023-33, Laws of Florida) - which restricts some individuals and entities associated with China, Russia, Iran, North Korea, Cuba, Venezuela, and Syria from owning certain real property in Florida - has been in effect since July 1, 2023. This is despite the current lack of State guidance on implementation, as well as the ongoing legal challenge to SB 264 in Shen v. Simpson, No. 4:23-cv-208-AW-MAF (N.D. Fla. 2023), appeal docketed, No. 23-12737 (11th Cir. Aug. 23, 2023).

On September 20, 2023, however, the Florida Department of Commerce (“DOC”) finally published proposed rules relating to the purchase of real property on or around military installations or critical infrastructure facilities. Over a month later, the Florida Real Estate Commission (“FREC”) followed suit with proposed rules containing the form buyer’s affidavits. And most recently, on November 6, 2023, the Florida Department of Agriculture and Consumer Service (“DACS”) announced a public workshop for discussing its forthcoming rules related to the interests of foreign ownership of agricultural land in Florida.

Although there has been progress on rule development for SB 264, none of the proposed rules have been officially adopted by the Florida Administrative Code. The DOC has also yet to start the rulemaking process relating to the purchase of real property by those associated with China. This lingering uncertainty, including Shen v. Simpson, means short- and long-term compliance with SB 264 remains in limbo. Here is where things stand today:

DOC’s Proposed Rules

As mentioned above, the DOC published proposed rules relating to the purchase of real property on or around military installations or critical infrastructure facilities (rules 73C-60.001 through 73C-60.007). They are specifically for Section 692.203, Florida Statutes, and are comprised of seven sections: (1) definitions; (2) real estate transactions prior to July 1, 2023; (3) registration; (4) computation of time; (5) fines; (6) liens; and (7) rebuttable presumption (related to the FREC affidavits). The proposed rules are a step in the right direction for implementation purposes, but there are still ambiguities and potential conflicts with the correlating statute. The DOC invited public comments on the proposed rules through October 11, 2023, but there has been no follow up notice regarding a change or withdrawal of the proposed rules based on any public comments.

Additionally, Section 692.204(10), Florida Statutes, tasks the DOC with also adopting rules relating to the purchase of real property by those associated with China - however, as of the date of this article, the DOC has not yet published any. It is possible - although not confirmed - that given the similar language between Sections 692.203 and 692.204, Florida Statutes, the DOC is waiting to finalize the proposed rules above before tackling the ones related to China.

FREC’s Proposed Rules

On November 1, 2023, FREC published a notice of proposed rules with the form buyer’s affidavits required by SB 264 (rule 61J2-10.200). There are two form affidavits included in the rules: (1) one for a natural person buyer; and (2) one for an entity buyer. Each form essentially requires the buyer to attest that the buyer is not a foreign principal as defined in Section 692.201, Florida Statutes, or that the buyer is a foreign principal but the transaction is otherwise in compliance with SB 264.

The buyer’s affidavit for a natural person is fairly straightforward, but the one for an entity cross-references the term “controlling interest” as defined in Section 287.138(1)(a), Florida Statutes. The exact interpretation of “controlling interest” in this context is one of the many ambiguities surrounding SB 264’s impact on institutional buyers and investors. By including this language, FREC is seemingly deferring to the DOC and/or the legislature rather than attempting to clarify what the term actually means within an entity’s governing documents. The deadline for submitting public comments on the proposed affidavits is November 22, 2023.

DACS’s Proposed Rules

The DACS announced a public workshop for November 21, 2023, to discuss proposed rules for Section 692.202, Florida Statues, relating to the interests of foreign ownership of agricultural land in Florida (rules 5J-27.001 through 5J-27.006). Although the DACS is a separate agency from the DOC, the general enforcement measures under Section 692.202, Florida Statutes (e.g., registration, liens, fines, etc.), are essentially the same measures in other parts of SB 264. This means the DACS’s proposed rules may appear similar to rules 73C-60.001 through 73C-60.007 when they are published. However, with the timing of the workshop in late November, the drafts may not be available until December or January of next year.

Shen v. Simpson

The ongoing legal challenge to SB 264 is currently with the U.S. Court of Appeals for the Eleventh Circuit. The Plaintiffs in Shen v. Simpson are four Chinese citizens and a Florida real estate brokerage that works primarily with Chinese clients. They are seeking an order enjoining the State from enforcing SB 264 and a declaratory judgment that the new law is unconstitutional.

On August 17, 2023, Judge Allen Winsor of the U.S. District Court of the Northern District of Florida - where the case originated - denied the Plaintiff’s motion for temporary injunction and held the Plaintiffs did not show a substantial likelihood of prevailing on the merits. Judge Winsor also disagreed that SB 264 violates the U.S. Constitution and the Fair Housing Act. The Plaintiffs appealed Judge Winsor’s order and are continuing to argue that the law violates the Equal Protection Clause and the Fair Housing Act; it intrudes on the federal government’s foreign affairs and powers; and is unconstitutionally vague. The Plaintiffs are re-seeking an injunction from the Eleventh Circuit, but this time they have narrowed the scope to only the portions of SB 264 that directly affect them. This means, regardless of the Eleventh Circuit’s decision on the injunction, much of SB 264 will likely remain in place while the parties litigate the issues on the merits.

Conclusion

SB 264 should have official rules as part of the Florida Administrative Code over the next few months. However, the new law’s long-term viability will remain at issue while Shen v. Simpson plays out. Until then, we will continue to monitor the rulemaking process and provide periodic updates as they become available.