Thursday, May 30, 2019
During the significant economic downturn of early 2008 that continued through mid-2009 and then turned into an anemic recovery until 2017, foreign investors sought U.S. farmland as an alternative to stocks. This has caused concern in some corners of ag. It’s an issue of national security – potentially disloyal parties should not be owning the U.S. real estate food base. As of the end of 2016, the USDA reported that foreign individuals and entities held interests in 28.3 million acres of U.S. agricultural land. That amounts to 2.2 percent of all privately held U.S. ag land and about one percent of all U.S. land. This has also raised questions about whether there are laws are on the books that might protect American soil from being owned by foreign persons and interests.
Foreign ownership of agricultural land – that’s the topic of today’s post.
Under the English common law, aliens could not acquire title to land except with the King's approval. The common law rule existed in England until it was abolished by statute in 1870. However, by that time, the notion of limiting alien ownership of agricultural land was well imbedded in United States jurisprudence. In the 1970s, the issue of foreign investment in and ownership of agricultural land received additional attention because of several large purchases by foreigners and the suspicion that the build-up in liquidity in the oil exporting countries would likely lead to more land purchases by nonresident aliens. The lack of data concerning the number of acres actually owned by foreigners contributed to fears that foreign ownership was an important and rapidly spreading phenomenon.
In 1978, the Congress enacted the Agricultural Foreign Investment Disclosure Act (AFIDA). 7 U.S.C. 3501 et seq. Under AFIDA, the USDA obtains information on U.S. agricultural holdings of foreign individuals and businesses. In essence, AFIDA is a reporting statute rather than a regulatory statute. The information provided in reports by the AFIDA helps serve as the basis for any future action Congress may take in establishing direct controls or limits on foreign investment in agricultural land and provides useful information to states considering limitations on foreign investment. The Act requires that foreign persons report to the Secretary of Agriculture their agricultural land holdings or acquisitions. The Secretary assembles and analyzes the information contained in the report, passes it on the respective states for their action and reports periodically to the Congress and the President.
AFIDA requires reports in four situations: (1) when a foreign person “acquires or transfers any interest, other than a security” in agricultural land; (2) when any interest in agricultural land, except a security interest, is held by any foreign person on the day before the effective date of the Act; (3) when a nonforeign owner of agricultural land subsequently becomes a foreign person; and (4) when nonagricultural land owned by a foreign person subsequently becomes agricultural land.
AFIDA defines “agricultural land” as “any land located in one or more states and used for agricultural, forestry, or timber production purposes...”. 7 U.S.C. § 3508(1). The regulations define agricultural land as “land in the United States which is currently used for, or if currently idle, land last used within the past five years, for farming, ranching, or timber production, except land not exceeding ten acres in the aggregate, if the annual gross receipts from the sale of the farm, ranch, or timber products produced thereon do not exceed $1,000. 7 C.F.R. § 781.2(b).
The reporting provisions of the AFIDA require the disclosure of considerable information regarding both the land and the reporting party. Individuals who are not U.S. citizens, and have purchased or sold agricultural land must report the transaction to the USDA’s FSA with 90 days of the closing. The information must be reported on Form FSA-153, and failure to do so can result in civil penalties of up to 25 percent of the fair market value of the property. The information to be disclosed includes: (1) the legal name and address of the foreign person; (2) the citizenship of the foreign person, if an individual; (3) if the foreign person is not an individual or government, the nature of the legal entity holding the interest, the country in which the foreign person is created or organized, and the principal place of business; (4) the type of interest in agricultural land that the person acquired or transferred; (5) the legal description and acreage of the agricultural land; (6) the purchase price paid, or other consideration given, for such interest; (7) the agricultural purposes for which the agricultural land is being used and for which the foreign person intends to use the agricultural property; and (8) such other information as the Secretary of Agriculture may require by regulation. 7 U.S.C. § 3501(a)(9).
While federal law requires informational reporting, some states have enacted statutes designed to restrict alien ownership of real property. The state laws are generally of three types: (1) outright restrictions on the acquisition of certain types of property; (2) limitations on the total amount of land that can be acquired; and (3) limitations on the length of time property can be held. Acquisition restrictions are common in the agricultural context, with the restriction generally applying only to the acquisition of farmland, as defined by the law. Exceptions are common for the acquisition of land for conversion to non-agricultural purposes, land acquired by devise or descent, and land acquired through collection of debts or enforcement of liens or mortgages. Acreage restrictions allow foreign investment, but place a premium on having an effective method of discovering and preventing multiple acquisition by the same individuals through the use of various investment vehicles. Time restrictions generally do not apply to voluntary acquisition of the land by foreign investors, but are associated with involuntary acquisitions. Some states require the disclosure of information concerning the land acquired and the investors.
Currently, thirty states restrict agricultural land acquisition by aliens. Consider the following three states as examples of states that have more restrictive provisions:
- Iowa - Presently, Iowa has the most restrictive limitation on nonresident alien ownership of any state in the United States. Iowa Code §9I. The Iowa restriction provides that a “nonresident alien, foreign business, or foreign government, or an agent, trustee or fiduciary thereof, shall not purchase or otherwise acquire agricultural land in this state.” A major exception exists that allows restricted parties to acquire up to 320 acres of agricultural land for “an immediate or pending use other than farming” if the conversion is completed within five years, and annual reports on the progress of the conversion are made. In addition, during the five-year period, the land can only be farmed on lease to a family farm, a family farm corporation, or an authorized farm corporation. The Iowa law also provides that agricultural land acquired by nonresident aliens by devise or descent must be divested within two years. However, if the land is acquired by devise or descent from another nonresident alien, it need not be divested, unless the nonresident alien originally acquired the land in the six months preceding enactment of the law.
- Under the Minnesota law, no natural person (unless a United States citizen or a permanent resident alien of the United States) can acquire, directly or indirectly, any interest in agricultural land, including leaseholds. Minn. Stat. Ann. § 500.221.1. Foreign corporations cannot, either directly or indirectly, acquire or obtain any interest in title to agricultural land unless at least 80 percent of each class of stock issued and outstanding or 80 percent of the ultimate beneficial interest of the entity is held, directly or indirectly, by United States citizens or permanent resident aliens. Land can be acquired by devise, inheritance, as security for indebtedness, by process of law in the collection of debts, or by enforcement of a lien, but land acquired in these fashions must be divested within three years of acquisition. Similarly, land or interests acquired in connection with mining and mineral processing operations are permissible but, pending development for mining purposes, the land can only be used for farming on lease to a family farm, family farm corporation or authorized farm corporation. Another exception exists for agricultural land operated for research or experimental purpose if the total acreage does not exceed that held on May 27, 1977.
- Missouri law prohibits aliens and foreign businesses from acquiring by grant, purchase, devise or descent, agricultural land in the state. Mo. Rev. Stat. §§ 442.560-442.592. Under the legislation, “alien” is defined as any person who is not a citizen of the United States and who is not a resident of the United States or its holdings. Mo. Rev. Stat. § 442.566(2). A “foreign business” is defined as “any business entity whether or not incorporated, including but not limited to corporations, partnerships, limited partnerships, and associations in which a controlling interest is owned by aliens.” Mo. Rev. Stat. § 442.566(4). Agricultural land is defined as any tract consisting of more than five acres whether inside or outside the corporate limits of any municipality, which is capable of supporting an agricultural enterprise including production of agricultural crops, livestock, poultry and dairy products. Farm leasehold interests of ten years or longer or a lease renewable at the lessee's option for greater than ten years are treated as the acquisition of agricultural land. An exception exists for agricultural land acquired for immediate or potential use in non-farming purposes, but the exception is limited to that amount of land necessary for the nonfarm business operation. While the nonfarm activity is being developed, the land may only be farmed under lease to a family farm unit, family farm corporation, or a registered alien or foreign business. The Missouri legislation also contains a reporting requirement requiring any foreign person holding any interest (other than a security interest) in agricultural land to submit a detailed report to the Director of Agriculture within 60 days, except for land used for the production of energy-related minerals. The information required to be submitted includes the name and address of the foreign person, the citizenship of foreign individuals, the type of interest in acquired land held or transferred, a legal description of the land, the purchase price or consideration paid or received, information concerning transferees, and the declaration of the type of agricultural activity engaged in or the nonfarm purpose for which the land was acquired. Failure to file a required report is subject to civil fine.
Other states that restrict foreign interests in ag land in one form or another (some restrictions are very minor) are: Alabama, Alaska, Arkansas, California, Georgia, Hawaii, Idaho, Illinois, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Mississippi, Nebraska, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Virginia, Washington, Wisconsin and Wyoming.
While there is no bar on foreign ownership of agricultural land at the federal level, a majority of states have some sort of restriction. In many of these states, those restrictions are minor. The states with the most extensive restrictions tend to be in the center of the country. Other states have no restrictions at all or place the same restrictions on foreign individuals or entities as they do domestic ones.