On April 29, 2023, North Dakota Governor Doug Burgum signed Senate Bill No. 2371 into law, which prohibits local development and ownership of real property by “foreign adversaries,” effective August 1, 2023. The law sunsets on July 31, 2025 and will be ineffective after that date unless renewed. This state law is one of the latest in a series of state bills seeking to limit foreign ownership of land, and it follows a recent determination by the Committee on Foreign Investment in the United States (“CFIUS”) that it lacked jurisdiction over a Chinese acquisition of real estate in that state (see our blog post on Fufeng’s investment here involving North Dakota real estate here).  Below is a summary of the new North Dakota law.  

North Dakota Law

The law prohibits “foreign adversaries” and related entities, as described below, from purchasing or otherwise acquiring title to real property in North Dakota.  It further requires divestiture of existing holdings, with limited exceptions, and imposes restrictions on state development agreements with relevant entities. 

Entities that fall within the concept of foreign adversaries and related entities include:

• A foreign business with a principal executive office located in a country that is a foreign adversary;

• A foreign business in which a foreign adversary owns more than 50 percent of the controlling interest or total ownership interest unless the foreign business entity was operating lawfully in the United States on August 1, 2023; or

• A foreign business in which a foreign adversary owns fifty percent or less, but the foreign adversary directs the business operations and affairs of the foreign business entity without the requirement of consent of any nonforeign adversary unless the foreign business entity was operating lawfully in the United States on August 1, 2023.

The law defines “foreign adversaries” by reference to that term’s definition in the Securing the Information and Communications Technology and Services Supply Chain (ICTS) regulations at 15 C.F.R. §7.3(a), which defines “foreign adversary” as either China, Cuba, Iran, North Korea, Russian, and Venezuelan Maduro Regime. In addition, under the North Dakota law, a “foreign adversary” is a person identified on the Office of Foreign Assets Control sanctions list.  Notably, the law prohibits Chinese businesses from engaging in transactions involving land in North Dakota, despite China being the United States’ third largest trading partner, according to the U.S. Census Bureau.

The law further requires divestiture of existing holdings.  Any foreign adversary or related entity that holds real property in North Dakota must divest itself of such property within 36 months after the law comes into effect. Failure to do so can subject an entity to a civil penalty of up to $25,000. The law exempts only entities that are duly registered and have maintained a status of good standing for seven (7) years or longer, have been approved by CFIUS, and have maintained an active national security agreement with the government.

In addition, the law prohibits local city and county authorities from procuring, authorizing, or approving development agreements, building plans, or proposals related to city or county development with a “foreign adversary.” The same exception indicated above also applies to this restriction.

State Law Adds to Growing CFIUS Risk for Foreign Investment in Real Property

CFIUS recently issued a proposed rule to extend the scope of its authority to review certain foreign real estate transactions (for further information see our blog here). The proposed rule expanding CFIUS authority adds to the increasing number of state legislation over foreign investment in real property (e.g., in Florida, Virginia, South Dakota, and Montana as well as pending bills in Texas, Georgia, and South Carolina, among others) Although legal challenges to some of these newly enacted state laws are developing, these laws will nevertheless increase the risk that local opposition to foreign land acquisitions will manifest as regulatory obstacles at the state level and possibly prompt greater scrutiny from CFIUS. Both foreign investors and U.S. businesses with foreign investments should take these new state restrictions and CFIUS’s expanding review authority into account when formulating regulatory and policy strategies for proposed investments.