On May 31, 2023, Alabama Governor Kay Ivey signed into law the Alabama Property Protection Act (codified under Ala. Code § 35-1-1.1) which seeks to restrict certain foreign purchases of land, specifically agricultural land, within the state. Last year, the Alabama state legislature considered Senate Bill 14 (“SB 14”) to restrict foreign investments in the state’s farmland. Specifically, SB 14 would limit ownership of agricultural land and forestland to U.S. citizens and resident aliens. Ultimately, the state legislature did not enact SB 14 into law. An article discussing SB 14 is available on NALC’s website here.
Before enacting the Alabama Property Protection Act, Alabama state law expressly permitted resident and nonresident foreign persons to acquire and hold real property within the state in the same manner as a native citizen. See Ala. Code § 35-1-1. However, now that the foreign ownership law is in effect, certain foreign investors are prohibited from acquiring agricultural land located within the state.
Overall, Alabama’s newly enacted foreign ownership law prohibits a “foreign principal” from acquiring title or a “controlling interest” in agricultural or forest property located within the state of Alabama. See Ala. Code § 35-1-1.1(c). Like any piece of legislation, the definitions contained under Alabama’s law are important because they provide context to how the words or phrases are to be understood throughout the legislative text.
Under the law, “agricultural and forest property” includes “real property used for raising, harvesting, and selling crops or for the feeding, breeding, management, raising, sale of, or the production of livestock, or for the growing and sale of timber and forest products.” A “foreign principal” is a political party and its members, a government, and any government official of China, Iran, North Korea, and Russia. Foreign principals also include countries or governments that are subject to any sanction list of the U.S. Office of Foreign Assets Control (“OFAC”).
Alabama’s law states that a foreign principal cannot “acquire title to” agricultural land or forestland located within the state, which means they cannot purchase or otherwise obtain an ownership interest in these types of properties. However, the law is unclear as to whether the restriction applies to leases because leaseholders do not acquire title to land they lease. Even though the law restricts foreign principals from acquiring a “controlling interest,” this term is not defined under the statute. Because it is unclear whether a “controlling interest” includes leases, foreign principals may be able to continue leasing Alabama agricultural and forest property.
Most foreign ownership laws restrict foreign individuals, foreign business entities, and/or foreign governments. Except for Alabama, states that restrict foreign government investments also restrict foreign individuals or foreign business entities, or both, from investing in land located within their state. In other words, Alabama is the only state with a foreign ownership law that only restricts governments—including certain individuals and political parties associated with those governments—of particular countries from acquiring farmland and forestland located within their state.
Some states, such as Idaho, restrict foreign governments and government-owned business entities from acquiring agricultural land located within their state; however, the Alabama’s definition of “foreign principal” does not expressly extend to business entities that are owned or controlled by a foreign principal. Therefore, it is unclear whether the entities owned or controlled by a government or country of a foreign principal are subject to the restriction prescribed under Alabama’s foreign ownership law.
Like many states’ foreign ownership laws, Alabama’s law includes a “grandfather clause.” Essentially, a grandfather clause exempts certain persons from the requirements of a law by allowing these persons to continue with the activities that were permissible before the implementation of the new law. Alabama’s law expressly states that the restriction only applies to “the purchase of or other acquisition of title to real property on or after the effective date,” which is August 1, 2023. Therefore, foreign principals with an ownership interest in agricultural land and forestland before that date may continue to hold their interest in that land.
Additionally, Alabama’s foreign ownership law exempts certain persons that may be involved in a foreign principal from acquiring title to agricultural or forest property from liability. Specifically, title insurers, title agents, real estate agents and brokers, attorneys, and others that assist in facilitating a real estate transaction are not held liable for a violation of the restriction prescribed under Alabama’s law.
Many states’ foreign ownership laws contain enforcement and penalty provisions. Some states’ laws include a provision that directs a state government agency to investigate possible violations of their foreign ownership law. However, Alabama’s law is silent on investigation, enforcement, and penalties. Without these provisions in the law, it is uncertain (1) who investigates potential violations, (2) who has authority to bring a legal action against a foreign principal that is potentially in violation of the restriction, and (3) what penalties a foreign principal may sustain if determined to be in violation of the law.
In 2023, Alabama joined the majority of states to propose a piece of legislation to prohibit or restrict foreign investments, and is one of approximately twelve states to enact a law restricting certain foreign acquisitions of agricultural land located within their state. Under Alabama’s law, foreign governments, governmental officials, and political parties and its members of China, Iran, North Korea, Russia, or countries sanctioned by OFAC are prohibited from acquiring title to or a “controlling interest” in agricultural land and forestland located within the state. Foreign principals that held land before August 1, 2023, may continue to hold their interest in the land; however, Alabama’s newly enacted foreign ownership law prohibits these investors from acquiring additional agricultural and forest property within the state.
To read the Alabama Property Protection Act (Ala. Code § 35-1-1.1), click here.
To learn more about foreign ownership of agricultural land, click here.
To view states’ laws regulating foreign ownership of private land, click here.
For other NALC resources on foreign ownership of ag land, click here.
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