Texas law limits foreign ownership of real property

On June 21, 2025, Texas Governor Greg Abbott signed Senate Bill 17 (the Bill) into law, with an effective date of September 1, 2025.

The Bill prohibits certain foreign individuals and entities associated with designated countries from acquiring real property in Texas, or leasing for one year or longer. The currently designated countries are China, Iran, North Korea and Russia. The Bill also authorizes the Governor to designate additional countries and entities subject to these restrictions.

This legislation builds upon the Lone Star Infrastructure Protection Act by further limiting foreign ownership of land and businesses in Texas. Violations may result in criminal and civil penalties. The Texas Attorney General is expected to promulgate rules for implementation. The Bill is presently being challenged on constitutional grounds in the United States District Court for the Southern District of Texas.

Summary of the Bill

Restrictions on individual’s ownership or leases of real property

The Bill amends Chapter 5 of the Texas Property Code to restrict property rights of certain non-citizens. Specifically, for natural persons, individuals who are citizens of or domiciled in a designated country are prohibited from acquiring interests in real property in Texas. The definition of “real property” under the Bill includes agricultural land and improvements, commercial, industrial and residential property, groundwater and water rights, as well as standing timber and minerals in place. Leasehold interests of less than one year are exempt from these restrictions.

This restriction does not apply to US citizens or lawful permanent residents. Additionally, citizens of designated countries who are lawfully present and residing in the US may acquire residential property for use as a homestead.

Restrictions on companies’ ownership or leases of real property

For companies or entities, the Bill prohibits direct or indirect acquisition of real property interests by any company or organization “owned by or the majority of stock or other ownership interest of which is held or controlled by” an individual who is a citizen of or domiciled in a designated country, unless that individual is a US citizen or permanent resident. The prohibition further extends to entities headquartered in a designated country or controlled by the government of a designated country.

Courts are authorized to order divestment of interests acquired, termination of the lease or sale of the land in violation of the Bill. Individuals may face criminal prosecution as a state jail felony for intentional or knowing violations, while entities may be subject to a civil penalty equal to the greater of US$250,000 or 50 percent of the market value of the interest in real property. The Bill does not appear to restrict landowners from selling or leasing to individuals from or entities with ownership from designated countries. The acquirers or the lessees alone would bear the risk in a transaction.

Ambiguities in the Bill and practical implications

Ownership and control

It is not clear whether the law restricts ownership only at a certain threshold or whether it restricts even a de minimis indirect ownership interest. To be specific, the Bill prohibits acquisition by any company or organization “owned by or the majority of stock or other ownership interest of which is held or controlled by” an individual who is a citizen of or domiciles in a designated country. The language can be interpreted as either restricting only the entity with majority interests, or as restricting any kind of foreign ownership at all, including minority or indirect interests.

Earlier versions of the Bill originally proscribed more broadly any organization “owned by or under the control of one or more” individuals domiciled in a designated country. “Under control of,” as envisioned in the Statement of Intent, referred not just to the simplistic 51-percent ownership; rather, it expressly defined “control” to also include the authority to direct activities, make legal commitments and hire or fire principal decision makers of an entity. The final version of the Bill omitted the definition of “control”, leaving ambiguity as to the threshold of ownership or control that triggers the restriction.  

It remains to be seen if the regulations promulgated under the Bill will interpret the language to apply only to entities with the majority ownership or control threshold. If so, potential structuring of investment vehicles such as trusts, funds or REITs involving passive economic minority investors from the designated countries (such as China) might be allowed.

Entities considering real property acquisitions may seek to complete transactions before the Bill’s effective date. Alternatively, individual owners from designated countries may consider establishing domicile in a non-designated country or obtaining US citizenship or permanent residency prior to acquisition.

Lease renewal

The Bill applies prospectively to acquisitions occurring on or after September 1, 2025 and is not retroactive. However, it is unclear if lease renewals will be exempt from the restrictions (if such renewals are for one year or longer). This could potentially impact industrial companies with Chinese ownership that have already signed long-term leases in Texas or that are considering leasing facilities in Texas.

Companies potentially affected by the Bill may wish to secure lease renewals or negotiate extensions before the effective date.

Ongoing legal challenges

On July 3, 2025, a class action lawsuit was filed in the US District Court for the Southern District of Texas challenging the Bill’s constitutionality. The plaintiffs, Chinese citizens residing in Texas on valid visas, alleged violations of equal protection, due process and federal preemption. The court may issue a preliminary injunction against enforcement of the Bill, but the ultimate outcome remains uncertain.

It is worth noting that similar laws in other states have faced constitutional challenges, particularly on federal preemption grounds. In 2024, federal courts issued preliminary injunctions against enforcement of comparable laws in Arkansas and Florida. Both a Federal District Court in Arkansas and the 11th Circuit found that the respective plaintiffs had shown a substantial likelihood of success on their Federal Preemption claims. These cases remain pending, and the outcomes of similar constitutional challenges in other states may influence the fate of the Bill.

The ultimate decision by the courts as well as the potential rules that the Attorney General will promulgate for the Bill’s implementation will help clarify the Bill’s scope and effect. For now, affected individuals and companies should continue to monitor any relevant update and consider proactive measures.

Special thanks to summer associates Olga Kunina and Sida Lai for assisting in the preparation of this article.