The Louisiana Constitution permits “[e]very person…the right to acquire, own, control, use,…private property.” La. Const. Ann. art. I, § 4. However, the state constitution authorizes the state legislature to enact “reasonable statutory restrictions” to this right. On June 27, 2023, Louisiana Governor John Bel Edwards signed into law House Bill 537 (“HB 537”) (codified under La. Stat. Ann. § 9:2717.1) which seeks to restrict certain foreign investments in real property located within the state. As a result, Louisiana joined approximately eleven other states to enact a foreign ownership law during the 2023 legislative session.
This is the second of two articles discussing Louisiana’s newly enacted foreign ownership law. The first article explains which foreign investors are prohibited from acquiring real property located within the state, the exceptions to this restriction, and the enforcement and penalty provisions of Louisiana’s foreign ownership law. This article discusses the protections the law provides to persons involved in a transaction that violates the restriction and protections provided to persons who have an interest in land acquired or held in violation of the state’s foreign ownership law.
As discussed in the first article, Louisiana’s foreign ownership law restricts a “foreign adversary” and a “person connected with a foreign adversary” from purchasing, leasing, or otherwise acquiring an interest in “immovable property” (i.e., real property) located within the state after August 1, 2023. See La. Stat. Ann. § 9:2717.1(A)(1). Under the law, a “foreign adversary” is any individual or government designated by the U.S. Secretary of Commerce as a “foreign adversary” under 15 C.F.R. § 7.4(a) that is subject to any sanction list of the U.S. Office of Foreign Assets Control (“OFAC”). The Secretary of Commerce’s foreign adversary list currently includes China, Cuba, Iran, North Korea, Russia, and Venezuela’s Maduro Regime. A “person connected with a foreign adversary” is a business entity where a foreign adversary has the authority to control or direct the management or policies of the entity. U.S. citizens and legal residents of the U.S., including any business entities wholly owned by these individuals, are not considered foreign adversaries.
Under Louisiana’s law, the state’s attorney general has authority to investigate potential violations of the law. The attorney general also has authority to enforce the restriction by filing a lawsuit to stop the transfer of real property to a foreign adversary or to seek a court order requiring a foreign adversary to dispose of their interest in real property they hold in violation of the law. If a court determines a violation of the restriction has occurred, the court may order the foreign adversary’s interest in the land be sold through a public auction or be sold—most likely through a private sale—to a person who is not a foreign adversary or connected to a foreign adversary.
Some states’ foreign ownership laws provide protections to parties that hold an interest in land simultaneously with a prohibited foreign investor. Some states also provide protections to parties that participate in a real estate transaction involving a prohibited foreign investor. Like these states, Louisiana’s foreign ownership law provides certain persons some protections or shields them from liability when they have an interest in land held in violation of the law or when they provide services or assistance in a transaction that results in a foreign adversary gaining an ownership interest in land located within the state.
Louisiana’s law provides protections to persons who hold an interest in land that is subject to forfeiture. Often, two or more persons have an interest in the same real property. For example, a landowner-landlord and a tenant each have certain legal rights in the same real property. In some instances, a foreign adversary and non-foreign adversary may each hold an interest in the same land. In these situations, the Louisiana foreign ownership law protects the rights and interests held by a non-foreign adversary in the real property. Specifically, the law states that the rights held by a non-foreign adversary are not affected by a forfeiture action or the disposition of the real property in which they hold an interest. Therefore, in situations where a foreign adversary and non-foreign adversary each have an interest in the same land, a court must consider the interest held by the non-foreign adversary in the land. As a result, a court’s order must attempt to preserve the legal rights of each non-foreign adversary interest holder, meaning the court may not be able to order the land to be sold.
Although the law requires a court to safeguard the rights and interests a person holds in land held in violation of the restriction, this protection is not absolute. Specifically, a court is not required to respect or protect a person’s rights or interests in land if the “attorney general proves beyond a reasonable doubt that the person entered into the transaction with the foreign adversary or person connected with a foreign adversary for the purposes of aiding such foreign adversary or person connected with a foreign adversary in compromising the security of the United States.”
Beyond a reasonable doubt is the highest burden of proof standard a litigant must satisfy to prove a fact in court. For the attorney general to prove beyond a reasonable doubt, they must convince the court there is no other reasonable explanation for the person’s actions in transacting with the foreign adversary other than to aid the foreign adversary “in compromising the security” of the U.S. The law does not provide a definition for what actions constitute “compromising the security” of the U.S., so that determination would be left up to a judge based upon the arguments and evidence presented by each party at trial. If the court determines the attorney general satisfies the burden of proof, the court does not have to consider the real property rights held by the non-foreign adversary person. As a result, the court could order the forfeiture and disposition of the land even if it would adversely impact the non-foreign adversary’s interest in land.
The law also specifies that a person’s interest in land is not void or voidable because land was previously held in violation of Louisiana’s foreign ownership law. In other words, the fact that a foreign adversary held land in violation of the state’s foreign ownership law does not prevent subsequent investors or purchasers from obtaining a valid interest or clear title to the land.
Further, the law allows a party to rescind a contract for the purchase, lease, or transfer of real property prior to the transfer of the property if a party determines that the purchaser or lessee is a prohibited foreign investor. In general, rescinding a contract may result in a breach of the contract, and the party to breach the contract may be liable to the other party for this breach. If the breaching party is liable, they may have to pay money to the other party for any damages they suffered because of the breach or may be required to fulfill their obligations under the contract. However, Louisiana’s foreign ownership law protects a party from liability if they choose to rescind the contract when the prospective purchaser or lessee is a foreign adversary or entity connected to a foreign adversary.
Certain persons that participate in real estate transactions, such as sellers, lessors, attorneys, title insurers, lenders, real estate agents, real estate brokers, are generally exempt from liability under Louisiana’s foreign ownership law. Specifically, the law states that these parties to a transaction have no duty to investigate whether an investor in land located within the state is a foreign adversary. Also, according to the law, these parties are not to be held liable for failing to identify whether an investor is a foreign adversary.
Additionally, a person to a real property transaction may “conclusively rely upon an affidavit” made by a person intending to acquire an interest in real property which affirms they are not a foreign adversary or a person connected to a foreign adversary. A person that provides a false affidavit may be liable for any loss or damage suffered by anyone who reasonably relies upon the false statements. In other words, the person who reasonably relies upon the false affidavit may bring a lawsuit to receive equitable relief, such as contract rescission or reformation, or recover money damages they suffered because of their reliance on the false statements made under the affidavit. However, if the person relies on an affidavit they know is false, they cannot recover for any loss or damage they suffered because of their reliance on the affidavit.
In 2023, Louisiana enacted HB 537 which seeks to restrict foreign adversaries and persons connected to foreign adversaries from acquiring any interest in real property located within the state after August 1, 2023. However, this piece of legislation was not the only measure considered by the Louisiana state legislature during the previous legislative session. In fact, the state legislature passed House Bill 125, which sought to restrict certain foreign investments only in agricultural land located within the state. Ultimately, Governor Edwards vetoed this measure and instead signed into law HB 537. Louisiana is now one of approximately twenty-four states that seek to restrict certain foreign acquisitions in land located within the boundaries of their state.
To read the Louisiana’s foreign ownership law, click here.
To read the first article in this series that discusses Louisiana’s foreign ownership law, 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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