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. In most states, foreign persons and entities have the same property rights as the citizens of those states. Other states restrict or significantly limit foreign ownership of agricultural land while allowing for at least some level of ownership of non-agricultural land. Today, approximately twenty-one states specifically forbid or limit nonresident aliens, foreign businesses and corporations, and/or foreign governments from acquiring or holding an interest in private agricultural land within the boundaries of their state.
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 been established because state laws vary widely. Because there is no uniformity among the states that have restrictions, legislators will likely need to draft their own piece of legislation that will establish the type of restrictions they are attempting to enact. Recently, NALC published a fact sheet titled Foreign Ownership of Agricultural Land: A Legislative Roadmap, which is available here, that provides legislators with a road map of various provisions they may want to consider when drafting a piece of legislation aimed at restricting certain foreign persons and entities from acquiring and holding private agricultural land.
Legislative Drafting Considerations
There are several different elements to drafting a bill that seeks to restrict certain foreign investors from acquiring and holding agricultural land. Although there is no uniform or model foreign ownership law among the states, there are areas these laws commonly address that legislators may want to consider. However, each state is different politically, demographically, and geographically, and one state’s law may not accomplish a legislator’s intent for proposing a restriction bill in their state. Further, different state legislators may have different purposes for proposing a bill that aims at restricting foreign acquisitions. Specifically, some states may want to prohibit all foreign ownership while other states may seek to restrict only certain foreign parties from investing or participating in certain types of agricultural production within their state.
State Constitution and Statutes
Some states’ constitutions and codes provide foreign parties the right to hold and acquire real property, and thus, a law that restricts foreign persons from investing in farmland will likely violate their state constitution. For example, some states have laws that permit foreign persons to inherit real estate, specifically farmland. Other states’ constitutions or codes allow or specifically direct their legislature to enact laws that restrict or prohibit foreign persons from investing in land within their state. Alternatively, a few states are silent on the issue of restricting foreign ownership of private farmland within its state.
Definitions
The definitions contained in any piece of legislation are important because it provides context to how the words or phrases are to be understood throughout the legislative text. This is especially true for legislation that seeks to restrict certain foreign investors from purchasing specific types of real estate within the state, such as agricultural land.
Some states’ foreign ownership laws define the phrase more broadly while other states have adopted a narrower definition. For example, Indiana’s law defines “agricultural land” as “land for use in crop farming or timber production.” Ind. Code Ann. § 32-22-3-1. A few states include separate definitions for “agricultural land” and “farming” within their law. Iowa’s law defines “agricultural land” as “land suitable for use in farming” and defines “farming” as “the cultivation of land for the production of agricultural crops, the raising of poultry, the production of eggs, the production of milk, the production of fruit or other horticultural crops, grazing or the production of livestock.” Iowa Code Ann. § 9I.1 (1)-(2). Other states’ laws, such as Minnesota, specifically exclude the production of timber or forest products from its definition of “farming.” Minn. Stat. Ann. § 500.24, subd. 2(a).
Additionally, agriculture has become a centerpiece for the carbon, solar, and wind energy markets because “carbon-smart” farming practices can sequester carbon and open pastureland can generate a lot of solar and wind energy. Although these markets are generating a new industry and revenue source in the agricultural sector, states have not specifically considered whether participation in carbon, solar, or wind energy markets constitutes “farming” on “agricultural land” within the scope of a foreign ownership law.
Overall, the definition of “agricultural land” within each state’s foreign ownership law typically determines the types of agricultural practices or commodities foreign investors are prohibited from participating or producing. As a result, one state’s definition of “agricultural land” may not be practical for another state.
Restricted Foreign Parties
Almost every state that has a foreign ownership law specifies which foreign investors are prohibited or restricted from purchasing, acquiring, owning, or otherwise holding agricultural land within its state. In general, the three different classifications of foreign investors that states restrict include foreign individuals, foreign business entities, and foreign governments. Some states only restrict one classification of foreign investor while other states restrict multiple classes of foreign investors.
Multiple states restrict foreign individuals from investing in their state’s farmland, but there is no uniform approach to restricting this classification of foreign investor. Typically, states use the terms such as “aliens,” “non-resident aliens,” or “non-resident individuals,” or similar terminology to indicate its restriction applies to individual persons (i.e., not business entities or governments).
Property Interests
Several states’ foreign ownership laws define the type of ownership interests that are restricted or prohibited. In general, there are several different types of ownership interests someone may hold in land, such as fee simple (outright ownership), joint ownership, a life estate, or a leasehold interest. Each type of ownership interest provides different rights and protections in property to individuals and entities. Accordingly, some states restrict foreign investors from acquiring “by grant, purchase, devise, descent, or otherwise” any farmland located within its state.” See Ind. Code Ann. § 32-22-3-4(a).
Restriction Provision
Generally, the actual provision that establishes a restriction against certain foreign purchases of farmland does not have to be lengthy. In fact, many states’ laws contain a one- or two-sentence provision that declares a restriction or prohibition on foreign ownership of agricultural land located within their state. The most common components of a restriction provision include:
- The types of foreign persons or entities subject to the restriction (individuals, business entities, and/or foreign governments)
- The types of investments or acquisitions that are prohibited (grant, purchase, own, hold, transfer, devise, descent, lease, alienate, or otherwise acquire)
- A commencement date of the restriction
- Whether direct and indirect acquisition is restricted
- Status changes of individuals and entities
Exceptions
Every foreign ownership law contains exceptions. In other words, every state’s law contains provisions that permit foreign investors to acquire or hold agricultural land in certain situations. Most often, these provisions exempt certain foreign parties, agricultural practices, and land-use activities from a state’s restriction. While some states have only a few exceptions, many states have multiple exceptions to its restriction on foreign investment in agricultural land.
A few states include an acreage limit or cap to its restriction. For example, Pennsylvania caps foreign ownership to 100 acres before the restriction applies. 68 Pa. Stat. Ann. § 41. Some states’ laws provide exceptions for conversions of agricultural land or the use of agricultural land for nonfarming enterprises, such as manufacturing or industrial purposes. In general, this type of exception arises when a restricted foreign party acquires agricultural land but converts the land into some use other than farming.
Several states that have a foreign ownership law typically exempt certain types of agricultural production from its restriction. Some states exempt foreign parties from restrictions when the foreign-owned farmland is used for purchases such as raising breeding stock, livestock feeding operations, cultivating nursery plants, vegetables, grain, fruits or sod, producing poultry or poultry products, producing timer and forest products, and dairy or swine operations.
Another exception found in many states’ foreign ownership law or statutory code is taking agricultural land through someone’s estate. Situations may arise where a restricted foreign party obtains ownership of agricultural land by inheritance (“by descent”) or through the terms of a person’s will (“by devise”).
To avoid violating the Dormant Commerce Clause, some states’ foreign ownership laws exclude certain types of business operations from its restriction so that the law does not violate federal law. The Dormant Commerce Clause, which derives from the Commerce Clause under Article I of the U.S. Constitution, prohibits a state legislature from enacting laws that place an excessive burden on interstate or international commerce. Certain business operations, such as railroads, public utilities, common carriers, and pipeline companies conduct business and provide services across large portions of land in sometimes several different states. Thus, some states exempt these types of operations and activities from its restriction.
Most states with a foreign ownership law exempt lenders from a restriction when agricultural land is collateral for a loan. However, some states that permit foreign lenders to enforce its security interest in farmland also limit the period of time in which a foreign lender may hold title to the land after foreclosure. Last, foreign ownership laws usually include a “grandfather clause” which permits foreign farmland owners to continue holding their ownership interest in the land if they held that interest before a certain date, such as the enactment date of the foreign ownership law.
Enforcement and Penalty Provisions
Many states’ restriction laws contain enforcement and penalty provisions while some states are silent on enforcement of their restriction law. Some states have assigned enforcement authority upon the state’s attorney general or a district attorney of the county where the foreign-owned land is located. Other states may permit private enforcement, meaning residents of the state can bring a divestment action against a foreign party suspected of violating a foreign ownership law.
Aside from losing an ownership interest in agricultural land, some states require foreign persons that violate its law to pay a civil penalty. Sometimes, the amount of the penalty is ordered by a judge. Other times, the penalty is assessed on a certain percentage amount of the firm market value of the foreign-held land in violation or the number of violations committed by a foreign person. Arkansas’ foreign ownership law attaches criminal penalties to violations of the state’s restriction. Specifically, prohibited foreign investors that are convicted of violating Arkansas’ restriction are guilty of a felony that carries a penalty of up to two years imprisonment and/or a $15,000 fine. Ark. Code Ann. § 18-11-704(e).
Conclusion
As the amount of foreign-owned agricultural land continues to increase throughout the United States, Congress and the majority of states have considered legislation that is aimed at restricting certain foreign investments and acquisitions in real property, specifically farmland. As of May 2023, eight states—Arkansas, Florida, Idaho, Montana, North Dakota, Tennessee, Utah, and Virginia—have enacted a foreign ownership law that restricts foreign purchases in their states’ agricultural land to some degree. NALC is tracking federal foreign ownership legislation as well as each states’ foreign ownership proposal(s) and will update its Statutes Regulating Ownership of Agricultural Land compilation when there are changes to a state’s law.
To read NALC’s Foreign Ownership of Agricultural Land: A Legislative Roadmap, click here.
For compilation of state laws governing foreign ownership of agricultural land, click here.
To learn more about foreign ownership of agricultural land, click here.
A recording of NALC’s Foreign Ownership of Ag Land: Federal & State Legislative Update webinar is available here.
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