Recently, California’s state legislature passed a bill (SB 1084) that is aimed at restricting foreign ownership of agricultural land within the state. According to a 2020 U.S. Department of Agriculture (“USDA”) report, foreign investors own over 1.1 million acres of California agricultural land, which is the ninth-highest amount among U.S. states. Most of this foreign-owned property is cropland at 416,082 acres, followed by 318,519 acres of pastureland and 281,465 acres of forests. Currently, the bill is awaiting California Governor Gavin Newsom’s approval. If Governor Newsom does not veto the bill, certain foreign governments would be prohibited from purchasing or acquiring an interest in agricultural land located within the state after December 31, 2022.

Background

Ownership of U.S. land, specifically agricultural lands, by foreign persons or entities has been an issue that traces to the origins of the United States. Today, approximately fourteen states specifically forbid or limit nonresident aliens, foreign businesses and corporations, and foreign governments from acquiring or owning an interest in agricultural land within their state. To see a compilation of the various restrictions enacted by each state, check out the National Agricultural Law Center’s “Statutes Regulating Ownership of Agricultural Land” chart here.

Although these states have instituted restrictions, each state has taken its own approach. In other words, a uniform approach to restricting foreign ownership has not yet been established because state laws vary widely. For instance, each state’s statute may define “agricultural land” and “farming” differently, only restrict certain types of foreign investors, make distinctions between resident and nonresident aliens, allow foreign purchasers to acquire up to a certain acreage amount of farmland, and provide different enforcement procedures and penalties for alleged violators.

Most states have not enacted restrictions or prohibitions on foreign ownership of privately held agricultural land. Rather, most of these states expressly allow foreign ownership of real property within their state. California is currently a prime example of such a state. In general, these states provide foreign persons and entities the same real property rights as natural born citizens of their state. For example, California law permits noncitizens to invest and hold real property within the state. Cal Const. art. I, § 20; Cal. Civ. Code § 671. Accordingly, even though current California law allows foreign ownership of real property, SB 1084 would—if enacted—exclude agricultural land as a type of property which foreign governments could purchase.

SB 1084

According to the text of SB 1084, its purpose is to restrict potential “foreign government control of California’s agricultural land and natural resources” and to “secure the integrity” of the state’s farmland “due to the effects it has on the global food security.” To accomplish this, the bill provides that “a foreign government shall not purchase, acquire, lease, or hold any interest in agricultural land in the State of California.”

In general, knowing the definitions contained in the bill is essential to understanding precisely which parties are restricted from purchasing property that qualifies as agricultural land. Under SB 1084, “agricultural land” has the same meaning as defined under federal law, which states agricultural land is “any land located in one or more States and used for agricultural, forestry, or timber production purposes….” 7 U.S.C. § 3508(1). Therefore, if a piece of property is being used to produce agricultural commodities or timber, it likely qualifies as “agricultural land” under SB 1084.

The law states that only foreign governments are prohibited from purchasing or acquiring an interest in agricultural land. Under SB 1084, a “foreign government” is defined as “a government or the state controlled-enterprise of a foreign government.” The U.S. federal government or any of its states or territories are not considered “foreign governments” for purposes of SB 1084; only governments of other countries are subject to the restrictions under the law.

SB 1084 specifies that a “state controlled-enterprise” is a “business enterprise in which the government has a controlling interest.” A foreign government has a “controlling interest” if it owns (1) 51% or more of an interest in an entity, or (2) less than 51% of an interest in an entity, but directs the business activities of the enterprise without influence of another party. Accordingly, foreign governments that have a controlling interest in a business entity that holds an interest in California agricultural land is subject to the restriction and is likely in violation of SB 1084.

While SB 1084 restricts foreign governments from purchasing farmland within the state, there are some exceptions to this restriction. For example, foreign governments that acquire or hold agricultural land before January 1, 2023 are exempt from the restriction. The restriction also does not apply to “federally recognized Indian tribe[s] or its government units and enterprises.” Furthermore, foreign governments that have a treaty with the U.S. are exempt from the restriction if it would be inconsistent with the terms of that treaty.

Additionally, SB 1084 directs the California Department of Food and Agriculture (“CDFA”) to publish an annual report based on information provided to it by the U.S. Department of Agriculture (“USDA”) through the federal Agriculture Foreign Investment Disclosure Act of 1978 (“AFIDA”). Under AFIDA, certain foreign persons are required to disclose their interests in U.S. agricultural land to USDA. CDFA’s report must also include information concerning changes or trends of foreign-owned farmland and the extent of foreign-owned water rights and foreign-owned water desalination facilities. Importantly, SB 1084 does not specify that the report include information concerning only foreign governments, but agricultural land under “foreign ownership.” Therefore, CDFA may report the investments of foreign individuals and business entities in the state’s farmland.

Conclusion

Over the past year, the issue of restricting foreign investments and ownership of farmland emerged in a few states, such as Alabama, Missouri, Oklahoma, Indiana, and Texas. California is now included in this list of states attempting to restrict certain foreign investments in agricultural land under SB 1084. Under the bill, foreign governments would be restricted from purchasing California agricultural land after December 31, 2022. However, the bill is currently awaiting Governor Newsom’s approval or signature. Accordingly, readers should reference the California state legislature website for updates on the SB 1084 here.

To read SB 1084, click here.

To review a NACL webinar discussing laws limiting foreign ownership of agricultural land, click here.

For information on state laws governing foreign ownership of agricultural land, click here.