Surge in FDI Regulations in the U.S. and Abroad

Recent years have seen a rapid expansion in regulations concerning Foreign Direct Investment (FDI) in the United States and its trading partner countries. This increase has been particularly noticeable in the U.S. with individual states passing laws mainly targeting the acquisition of agricultural land. In Europe, the trend is similar, with individual European Union (E.U.) Member States enacting their own screening regimes.

Diverse State Approaches to FDI in Real Estate

In 2023, fifteen U.S. states implemented various restrictions on real estate-related FDI. While some aligned with federal regulations on prohibited real estate acquisitions, others aimed to protect agricultural lands more broadly. These state laws range from outright prevention of foreign ownership to merely requiring the reporting of such ownership. States including Alabama, Arkansas, Florida, and Texas, among others, have introduced laws requiring foreign investors to disclose certain real estate acquisitions. Others, like Ohio and Pennsylvania, limit foreign investment based on the acreage, and some states completely ban foreign ownership of specific lands.

Alabama’s Comprehensive Property Protection Act

Alabama’s Property Protection Act (APPA) of 2023 stands out as one of the most comprehensive state laws, integrating U.S. Federal law and restricting FDI by “foreign principals” in real estate related to agriculture, critical infrastructure, or proximity to military installations. The APPA defines “foreign principal” broadly and covers a range of real estate types, but it does not address whether leases count as a “controlling interest” nor does it specify enforcement procedures.

Federal Regulation of Real Estate FDI in the U.S.

At the federal level, the Committee on Foreign Investment in the United States (CFIUS) has historically protected businesses involved in the U.S. defense industrial base from FDI. The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) expanded these protections to include Critical Technologies, Infrastructure, and Sensitive Data. This expansion specifically addressed national security concerns related to FDI impacting critical infrastructure and sensitive government installations. CFIUS jurisdiction for covered real estate remains a voluntary filing, but early diligence is crucial for transactions potentially resulting in foreign ownership or control of real estate.

International FDI Regimes and Reforms

The U.S. is not the only nation tightening its FDI regulations. Countries like Canada, the United Kingdom, and members of the European Union have all established legislative frameworks governing foreign investment. These regulations vary in terms of what is covered, notification, and approval requirements. The UK, for instance, has implemented the National Security and Investment Act (NSI Act) to scrutinize transactions posing national security risks, and it’s also working to refine these powers to be more business-friendly.