A bill pending in the South Carolina House of Representatives proposes to significantly restrict land ownership in the state by certain foreign citizens or companies controlled by nations deemed adverse to U.S. security interests.
Senate Bill 576 was first introduced by South Carolina Senator Shane Massey and a number of co-sponsors (Senators Garrett, Peeler, Climer, Cash, Bennett, Turner, Gustafson, Rice, Verdin, Kimbrell, Corbin, Cromer, McElveen, and Campsen) on February 28, 2023. The bill proposes to modify an existing South Carolina law (S.C. Code Ann. Section 27-13-30) which restricts the ability of non-U.S. citizens or their businesses to own or control more than 500,000 acres of land in South Carolina.
The initial version of the bill proposed to do two things: (1) reduce the 500,000-acre cap on land ownership by non-U.S. citizens to just 1,000 acres; and (2) restrict corporations controlled by a “foreign adversary” from acquiring any interest in real property in South Carolina. Foreign adversaries include China, Cuba, Iran, North Korea, Russia and the Maduro Regime of Venezuela.
The final version of the bill passed by the South Carolina Senate, which is currently before the Ways and Means Committee of the South Carolina House of Representatives, does not change the existing 500,000-acre limit for land holdings by non-U.S. citizens or corporations owned by non-U.S. citizens. Notably, the total area of the State of South Carolina is approximately 20,492,800 acres, so a person or entity owning 500,000 acres would own approximately 2.5 percent of the entire state. The 500,000-acre limitation is not likely to apply to any landowner in South Carolina, as some of the most significant development projects in South Carolina are less than 2,000 acres (e.g., Boeing (which owns around 1,100-1,500 acres of land in South Carolina) and BMW (which owns about 1,200 acres of land in South Carolina)).
The bill does restrict citizens of foreign adversaries (or corporations controlled by foreign adversaries) from acquiring real property in South Carolina. This restriction does not apply to businesses and industries operating within South Carolina on December 31, 2022, as long as the land or real property is acquired for expansion purposes, and the expansion is approved by the South Carolina Secretary of Commerce and the Governor.
The final version of the bill also includes three additional exceptions to the restriction on foreign adversaries owning real property. First, foreign adversary companies who have already received incentive offers from the SC Department of Commerce will still be permitted to acquire land with the permission of the SC Secretary of Commerce and the Governor. Second, if a person has U.S. citizenship and citizenship in a foreign adversary country, that person may still acquire property in South Carolina. Finally, citizens of foreign adversary countries may acquire up to five acres of South Carolina property for residential use if they are lawful permanent residents of the U.S.
There are presently several unknowns, including whether the House will take up the bill, and whether the House will further amend it, necessitating concurrence with the Senate; however, if this bill were to ultimately pass and be signed into law by the Governor, the most impactful portion of the bill would likely be the complete restriction on land acquisition in South Carolina by corporations controlled by foreign adversaries. A corporation is controlled by a foreign adversary if it is engaged in commerce and meets one of four tests:
- If it is wholly owned by a foreign adversary (this would cover completely State-owned companies).
- If it has a foreign adversary as a dominant shareholder, directly or indirectly (this would cover non-State-owned companies in which a single State-owned entity has an ownership interest of 10 percent or more).
- If it is wholly owned by a citizen of a foreign adversary (this would cover non-State-owned entities that are owned by a single owner who is a citizen of a foreign adversary country).
- If it has one or a number of citizens of a foreign adversary whose cumulative ownership is as a dominant shareholder (this would cover non-State-owned companies where one foreign adversary citizen has 10 percent or more ownership of the company or where multiple foreign adversary citizens have 20 percent or more ownership of the company).
The bill defines a dominant shareholder as: (x) the single owner of ten percent or more of a legal entity engaged in commerce’s stock, securities or other indicia of ownership; or (y) multiple owners of twenty percent or more of a legal entity engaged in commerce’s stock, securities or other indicia of ownership. For entities with a limited number of owners, the ten percent and twenty percent ownership limits to be considered a dominant shareholder could be a fairly low threshold. If this bill were to pass, companies who have foreign adversary shareholders would want to closely monitor their ownership levels to ensure that they do not exceed the 10 percent and 20 percent dominant shareholder thresholds citizens of foreign adversaries.
Similar legislation restricting land acquisition by foreign adversaries has been signed into law in Florida and has been moving through legislatures in several other states. Florida’s enacted legislation has been met with legal challenges, and there is pending legislation in the United States House of Representatives aiming to preempt state legislation barring land acquisition based on citizenship.
Foreign companies with existing property in South Carolina or plans to acquire property in South Carolina (as well as domestic companies with foreign ownership) should carefully monitor the status of this legislation through the end of the South Carolina General Assembly’s current legislative session to determine if it will have any impact on their businesses.
For more, please read, “Expanding Federal and State Restrictions on Foreign Investment in U.S. Real Estate”
Taylor Conley, a Summer Associate in Womble Bond Dickinson’s Los Angeles office and a student at Pepperdine Caruso School of Law, also helped author this alert.