On March 4, 2024, South Dakota Governor Kristi Noem signed into law House Bill 1231 (“HB 1231”) which amends a state law that limits certain foreign investments in real property located within the boundaries of the state. Specifically, HB 1231 places additional foreign land investment restrictions on certain business entities, as well as amend the enforcement procedures under the state’s foreign ownership law. The measure authorizes the state to further monitor foreign investments in agricultural land and places new reporting requirements on certain business entities. South Dakota is now the fourteenth state in two years to enact foreign ownership legislation.
Before enacting HB 1231, South Dakota’s foreign ownership law restricted an “alien, who is not a resident of [the] state” and a foreign government, with some exception, from acquiring agricultural land located within the state. See S.D. Codified Laws, Chapter 43-2A. However, it was unclear who qualifies as an “alien” and “foreign government” because these terms were not defined under the state’s law. Further, unlike many other states’ foreign ownership laws, South Dakota’s previous law did not extend to foreign businesses. Although South Dakota’s corporate farming law restricts certain foreign businesses from participating in agriculture within the state, the restrictions and exceptions differ between the two laws. See S.D. Codified Laws, Chapter 47-9A. HB 1231 attempts to bring some clarity to the state’s foreign ownership law by providing definitions to the types of investors that are prohibited from acquiring an interest in South Dakota farmland and extends the state’s restriction to certain business entities.
Restriction on Foreign Investment
Essentially, HB 1231 restricts a “foreign person”, “foreign entity”, and “foreign government” from acquiring farmland within the state. Like any piece of legislation, the definitions contained under HB 1231 are important because they provide context to how the words or phrases are to be understood throughout the legislative text. The legislation defines a “foreign person” as “a natural person who is not a United States citizen or a resident.” It defines “foreign government” as any government—or any state-controlled enterprise of a government—other than the U.S. government, its states, territories, or its federally recognized Indian tribes. HB 1231 sets forth a definition of “foreign entity” that includes any organization that (1) is registered outside of the U.S. or (2) contains more than a 10% ownership interest held by a foreign person and/or a foreign government.
Similar to the restriction under the state’s previous law, HB 1231 provides that a foreign person, foreign entity, and foreign government is prohibited from owning more than 160 acres of agricultural land within the state. Although foreign investors are subject to this restriction, there are some exceptions. Each states’ foreign ownership law contains some exceptions to the restriction prescribed under their law. Like many states’ laws, HB 1231 exempts agricultural land a foreign person, foreign entity, or foreign government acquires by gift or inheritance. It also exempts farmland acquired from enforcing a security interest held by the foreign party in the land. However, a foreign party that obtains an ownership interest by gift or inheritance in excess of 160 acres of agricultural land must dispose of that interest within three years of the date they obtain that interest, but the legislation is silent on whether a foreign party must dispose of an interest they obtain by enforcing a security interest in farmland exceeding 160 acres.
The legislation also exempts leases of agricultural land held by a foreign person, foreign entity, or foreign government. In fact, HB 1231 expressly states that foreign investors may lease any number of agricultural land acres within the state. Accordingly, the 160-acre restriction only applies to ownership interests in agricultural land.
Further, HB 1231 exempts any agricultural land a foreign investor acquires for nonagricultural enterprises, including land that exceeds 160 acres. Although a foreign investor may acquire as much agricultural land necessary for their nonfarming business operation, the law prohibits them from using the land for the purpose of agricultural production. However, the foreign investor may lease the land to a family farm unit, a family farm corporation, or an authorized farm corporation for agricultural purposes. Nevertheless, the foreign investor has 5 years from the date they acquired their ownership interest in the agricultural land to initiate a nonagricultural business operation. If they fail to do so, they are in violation of the law and may be subject to an enforcement action.
Under HB 1231, a foreign entity that holds an ownership interest in agricultural land in excess of 160 acres has two years from the date the violation occurs to dispose of this interest. However, the legislation does not specify when a foreign person for foreign government must dispose of an ownership interest in agricultural land held in violation of the law. Thus, it is unclear whether foreign persons and foreign governments in violation of the law have a period of time to dispose of their farmland interests that exceed 160 acres before a legal action to enforce the restriction is brought against them.
Prohibited Entity
HB 1231 also places stricter restrictions on a “prohibited entity” when it comes to farmland acquisitions. The legislation defines “prohibited entity” as a “foreign entity from, foreign government from, or foreign person from” China, Cuba, Iran, North Korea, Russian, or Venezuela. In other words, an individual person “from” any of these countries is considered a “prohibited entity” and is subject to the restriction prescribed under the legislation. Unlike other foreign investors, prohibited entities may not own any agricultural land within the state. Also, HB 1231 restricts prohibited entities from leasing or holding an easement on agricultural land. However, there are some exceptions to this restriction. Prohibited entities may lease farmland for (1) agricultural research, but the prohibited entities’ encumbrance cannot exceed 320 acres or (2) the lease is for contract livestock feeding, such as a feedlot, by a family farm unit, a family farm corporation, or an authorized farm corporation.
Investigation, Enforcement, and Penalty
Like most states’ foreign ownership laws, HB 1231 contains enforcement and penalty provisions. Some states’ laws also include a provision that directs some government authority to investigate possible violations of their foreign ownership law. The legislation directs the state’s Department of Agriculture and Natural Resources (“DANR”) to refer evidence of a violation of the restriction to the attorney general. Once they receive evidence, the state’s attorney general is required to investigate the evidence to determine if a violation has occurred. If the attorney general determines a foreign investor or prohibited entity violated the restriction, they may bring an enforcement action. Under HB 1231, agricultural land held in violation of the restriction is subject to forfeiture by the state, which means the state takes ownership of the land. Additionally, any lease held by a prohibited entity in agricultural land is terminated. Thus, the attorney general has the authority to bring a legal action against any foreign investor or prohibited entity to enforce the forfeiture or the termination of a lease. HB 1231 permits a foreign investor or prohibited entity whose interest in agricultural land was forfeited to the state to appeal the forfeiture order within 30 days of the judgment.
Reporting
HB 1231 authorizes the state to have more oversight over foreign investments in South Dakota agricultural land and places new reporting requirements on certain business entities. Some states require foreign persons and entities to report their investments in farmland within their state. These state reporting statutes often correspond with the federal reporting requirements under the Agricultural Foreign Investment Disclosure Act (“AFIDA”) (7 U.S.C. § 3501 et seq.). Under AFIDA, a foreign person who acquires or transfers an interest in agricultural land is required to disclose their interest in the land to the U.S. Department of Agriculture (“USDA”).
HB 1231 includes a provision that would require any person that must submit an AFIDA report to USDA to submit a copy of their report to DANR. The legislation directs DANR to review these reports and any report voluntarily submitted by a county real property records office to determine whether a violation of the restriction has occurred. As previously stated, DANR is required to refer evidence of a violation to the state attorney general for further investigation.
Additionally, HB 1231 requires foreign business and entities that contain some level of foreign ownership that own agricultural land located within the state to disclose the legal description or location of the land, acreage held by the entity, and the current use of the agricultural land to the South Dakota Office of the Secretary of State (“SOS”). Under the legislation, the SOS is now required to make this information available to the public annually.
Conclusion
With the enactment of HB 1231, South Dakota is now the fourteenth state in two years to enact legislation that restricts certain foreign investments in land located within the boundaries of their state. However, South Dakota may not be the only state to enact a foreign ownership law this year. So far in 2024, state level proposals have been formally introduced in more than half of the states. NALC is tracking each states’ foreign ownership proposals and will update this Statutes Regulation Ownership of Agricultural Land compilation when there are changes to a state’s law.
To read HB 1231, click here.
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