On September 20, 2023, Florida’s Department of Commerce published proposed rule 73C-60.001 (the “Proposed Rule”) interpreting Fla. Stat. § 692.203 (the “Statute”).
The Statute, entered into law in May 2023 as part of SB 246, introduced restrictions to the sale of real property in Florida to entities and individuals from foreign countries of concern, including The People’s Republic of China, Russia, Iran, North Korea, Cuba, Venezuela, and Syria. Such foreign principals are prohibited from owning a “controlling interest” or acquiring “any interest” in real property located within 10 miles of military installations or critical infrastructure facilities.
The Statute carves out an exception for a “de minimus (sic) indirect interest”, defined as an equity interest of less than 5 percent in a publicly traded company or a non-controlling interest in an entity controlled by an SEC regulated investment adviser.
The Proposed Rule adds the following very important example of what constitutes a “de minimis indirect interest”:
“a passive ownership interest of a foreign principal in an entity, provided that the foreign entity does not possess, by virtue of that ownership interest, or otherwise, the power to direct or cause the direction of the management of policies of the entity with respect to the interest in real property”.
Furthermore, the Proposed Rule expands on what a “controlling interest” in real property is with the following definition:
“any interest other than a lease which gives the foreign principal both of the following rights…(a) the right to improve or develop the real property; and (b) the right to attach fixed or immovable structure or objects to the real property”.
Restricted foreign principals are defined as “any person who is domiciled in a foreign country of concern and is not a Citizen or lawful permanent resident of the United States” Fla. Stat. 692.201(4)(d). The Proposed Rule excludes individuals approved for the EB-5 program from this definition.
Furthermore, the Proposed Rule defines domicile as the place in which an individual is physically present and intends to permanently reside. This addresses the situation of people holding 2 or more nationalities. For example, someone who has Cuban and Italian nationality but permanently resides in Italy would not be deemed to be domiciled in Cuba.
The Proposed Rule offers a glimpse as to how the Department of Commerce will collect reports by indicating that foreign principals will have to use Form COM-73C-60 to report relevant information. The Department indicates that reporting will transition to an online registration system, when available.
The Proposed Rule clarifies under what situation a foreign principal is required to file an updated registration by establishing five specific scenarios (R.783C-60.003(7):
- The real property was sold by a foreign principal
- The real property is no longer owned by said foreign principal
- The foreign principal’s real property is no longer located within the 10-mile radius
- The foreign principal no longer has an interest in said real property
- The foreign entity no longer meets the definitional criteria for a foreign principal.
It is worth noting that entities and individuals associated with the People’s Republic of China are subject to a specific blanket prohibition on all purchases of interests in Florida real estate. This prohibition, codified in Fla. Stat. § 692.204, is expected to be the subject of proposed rules from the Dept. of Commerce.
The Department is accepting comments to the Proposed Rule until October 11, 2023.
*Fabio Giallanza is a corporate and real estate attorney at Weiss Serota Helfman Cole + Bierman. He represents businesses and investors in the acquisition and financing of property, along with business transactions and corporate matters. Mr. Giallanza specializes in cross-border transactions involving clients based in the United States, Europe, and Latin America.
Emma Rodgers is a legal intern in the Real Estate department at Weiss Serota Helfman Cole + Bierman and is an LL.M. candidate in Real Property Development at The University of Miami School of Law.
