Recently, an Alabama state lawmaker proposed a bill (S.B. 14) that is aimed at restricting foreign ownership of agricultural land within the state. According to a 2019 U.S. Department of Agriculture (“USDA”) report, foreign investors own over 1.7 million acres of Alabama agricultural land, which is the third-highest amount among U.S. states. Most of this foreign-owned property is forests at 1,734,581 acres, followed by 11,359 acres of cropland and 3,222 acres of pastureland. Specifically, the bill would restrict nonresident aliens, foreign businesses, and foreign governments from purchasing or acquiring an interest in agricultural land located within the state.

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 thirteen 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 been established because state laws vary widely. For instance, each state’s statute may define “agricultural land” and “farming” differently, 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. Despite this, Alabama’s S.B. 14 takes a similar approach to the foreign ownership restrictions instituted by Iowa. In fact, the current version of the bill contains many of the same statutory provisions contained in Iowa’s law.

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. Alabama 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, current Alabama law permits “[f]oreigners who are, or may hereafter become, bona fide residents of this state, shall enjoy the same rights in respect to the possession…of property, as native born citizens.” Ala. Const. Art. I § 34. Further, Alabama allows resident or nonresident aliens to purchase and hold real property in the state in the same manner as native citizens. Ala. Code § 35-1-1. Accordingly, even though Alabama law expressly allows foreign ownership of real property, S.B. 14 would—if enacted—exclude agricultural land as a type of property which foreign investors could purchase.

Proposed Bill Provisions

According to the current text of S.B. 14, its purpose is to “restrict ownership of agricultural land to United States citizens and resident aliens only.” To accomplish this, the bill provides that “a nonresident alien, foreign business, or foreign government, or an agent, trustee, or fiduciary thereof, may purchase or otherwise acquire agricultural land in this state.”

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 S.B. 14, “agricultural land” is defined as “[l]and suitable for use in farming,” and “farming” is defined as producing agricultural crops, eggs, milk, horticultural crops, including fruit, raising poultry, and grazing or producing livestock. Further, the production of timber, forest products, nursery products, and sod also qualify as “farming” under the proposed bill. However, the term does not include contracts for farm services from a provider of farm products or supplies, such as spraying or harvesting. Therefore, if a piece of property is being used to produce agricultural commodities, timber, sod, or nursery products, it likely qualifies as “agricultural land” under S.B. 14.

The proposed bill identifies three types of parties who are prohibited from purchasing or acquiring an interest in agricultural land. First, a “nonresident alien” is an individual who is not (1) a U.S. citizen, or (2) admitted into the U.S. for permanent residence by the U.S. Immigration and Naturalization Service. The second type of party includes “foreign businesses.” Under S.B. 14, this includes a “corporation incorporated under the laws of a foreign country, or a business entity…in which a majority interest is owned directly or indirectly by nonresident aliens.” Third, “foreign governments” are also restricted under the bill, which includes any government that is not the U.S. government, its states or territories.

While S.B. 14 restricts these types of parties from purchasing farmland within the state, there are some exceptions to this restriction. The exceptions contained within this proposed legislation are common to appear in some form in other states’ laws. One exception allows prohibited parties to acquire agricultural land by inheritance. Another exception under the bill permits these parties to acquire an interest in land by taking a security interest in agricultural land as collateral to secure a loan. When this occurs, the foreign individual or entity may obtain ownership of the land by foreclosing on the property to satisfy the debt owed by the borrower. Although these exceptions give ownership rights to prohibited foreign parties, these exceptions are limited. Specifically, if a foreign party acquires ownership of agricultural land under either of these exceptions, they must sell or dispose of their interest in the property within two years from the date they gained their ownership interest.

The proposed legislation also provides an exception for foreign parties who currently own or hold an interest in agricultural land. In general, if the current version of S.B. 14 is enacted, foreign parties that own agricultural land on the effective date of the bill may continue to own that property. However, the bill prohibits these parties from purchasing or acquiring additional agricultural land once the bill is in effect.

Aside from the exceptions, S.B. 14 also considers status changes of residents and businesses. Essentially, the bill provides that a U.S. resident or business that becomes a nonresident alien or foreign business after the effective date of the bill has two years to sell or otherwise dispose of any agricultural land they own or hold within the state.

Under S.B. 14, parties who purchase farmland or continue to hold land in violation of this bill remain in violation “for as long as the person holds an interest in the land.”

Another important provision contained under S.B. 14 is a registration or reporting requirement. While certain foreign persons are required to disclose their interests in U.S. agricultural land to USDA under the federal Agricultural Foreign Investment Disclosure Act of 1978 (“AFIDA”), several states have their own reporting requirements. Under the current text of S.B. 14, foreign parties will be required to register their agricultural landholdings with the Alabama Secretary of State. This means that a foreign person who meets any exception or changes their status after the effective date of the bill has 60 days to register their ownership interest. To satisfy this requirement, parties will have to provide their name, location, and the amount of agricultural acreage they own by municipality and county. Parties who fail to timely register may be subject to a penalty of up to $2,000 for each offense.

Like many other states who have enacted restrictions on foreign ownership, S.B. 14 provides instructions on how it would be enforced. According to the current text of the legislation, a court that finds a party acquired land in violation of the bill “shall declare the land escheated to the state.” This means the government takes automatic ownership of the property. Afterwards, the state would be required to sell the property. The proceeds from the sale would be used to pay court costs and pay the violating foreign party up to the amount they paid for the property. If any proceeds remain, the state would distribute the funds to the county or counties where the property is located.

Although S.B. 14 provides an enforcement process, the bill does not indicate who may bring a legal action against a suspected violator. Thus, under the current version of the bill, it is unclear whether a private citizen may bring an action or if the state must file suit against a suspected violating party.

Conclusion

Over the past year, the issue of restricting foreign investments and ownership of farmland emerged in a few states, such as Missouri, Oklahoma, and most recently, Indiana. Alabama is now included in this list of states considering the issue with the introduction of S.B. 14. Under the current version of the bill, foreign individuals and entities would be restricted from purchasing Alabama agricultural land. However, because this bill has a long way to go before it becomes law, it may be amended and some provisions discussed in this article may be revised or replaced. Accordingly, readers should reference the most current version of the bill here.

 

To read S.B. 14, click here.

To view a NALC webinar discussing laws limiting foreign ownership of agricultural land, click here.

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

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