Proposed Rules Broaden Texas Real Estate Foreign Ownership Restrictions

Texas Senate Bill 17 (“SB 17”), which became effective September 1, 2025, broadly restricts individuals domiciled in, and entities headquartered in, designated foreign countries (primarily, China, Iran, North Korea, and Russia) from acquiring or leasing real property in Texas, including mineral interests.¹ Penalties include automatic voidance of leases, forced divestment, as well as criminal penalties, including jail time.

On March 27, 2026, the Office of the Attorney General of Texas (the “OAG”) published proposed rules to implement and enforce SB 17 (the “Proposed Rules”). Though the statute itself establishes broad prohibitions, the Proposed Rules clarify and arguably expand the scope of SB 17’s prohibitions.

The Proposed Rules

The Proposed Rules define key terms, require mandatory reporting for “facilitating entities,” create a dedicated OAG enforcement unit, and outline the complaint submission process.

The definitions in the Proposed Rules of “control,” “interest in real property in this State,” and “purchase or otherwise acquire,” in particular, clarify and arguably expand the scope of SB 17’s purchase restrictions.

• The proposed definition of “control” includes the “possession, direct or indirect, of the power to direct or cause: (A) the direction of the management or policies of an entity; or (B) the acquisition or disposition of an interest in real property in this State, whether through ownership, by contract, office, position, or otherwise.” The definition deems certain roles as controlling, including general partners, managing members, executive officers, shareholders holding 10% or more of voting interests, and anyone with the present or future right to cause an entity to acquire or dispose of Texas real property.
• The proposed definition of “interest in real property in this State” aligns with the statute in that it excludes leasehold interests of less than a year. The defined term clarifies, however, that “interest in real property” includes “a series of licenses, leases, or other arrangements that, in substance, create a leasehold interest in real property in this State for one year or longer, even if structured as successive short‑term agreements.”
• The proposed definition of “purchase or otherwise acquire” includes not only direct real property acquisitions, but also “any transaction . . . by which a person or entity obtains control of an entity that owns an interest in real property in this State,” including redemptions and repurchases. This restriction applies “regardless of whether the entity acquired the real property before September 1, 2025.”

The period to comment on the Proposed Rules has closed, and it is yet to be determined whether there will be another set of proposed rules or opportunity to comment.

A Notably Broad Framework for Implementing SB 17

Taken together, the definitions in the Proposed Rules reflect a regulatory regime aimed at scoping in minority stakes, capturing direct and indirect ownership interests of both the acquirer and the target, and preventing successive lease renewals of less than one year each.

Control at 10% or “Otherwise”

One of the most notable definitions in the Proposed Rules is the use of a 10% voting threshold for “control.” This threshold is significantly lower than that of comparable state and federal foreign ownership regulatory frameworks. Similar language in Texas’s Lone Star Infrastructure Protection Act (“LSIPA”), a law passed in 2021 that restricts similar foreign-owned entities from entering into agreements that would afford them access to critical infrastructure in Texas, has been interpreted by the Electric Reliability Council of Texas (“ERCOT”) to refer to ownership interests of 20% or more (unless fully passive) or other means of control.² The Committee on Foreign Investment in the United States (“CFIUS”) asserts broad jurisdiction over “covered control transactions,” but the CFIUS regulations specifically provide that a foreign person’s acquisition of 13% of the voting interests in a U.S. business and one of seven board seats does not constitute the acquisition of “control.”³

With that said, the “control” definition focuses on voting interests rather than economic interests and does not appear to extend to passive investors, such as limited partners. (But note that restricted entities under the statute include those “owned by or the majority of stock or other ownership interest of which is held or controlled by” individuals or entities that are themselves restricted persons. Accordingly, a majority limited partner interest likely falls within the scope of SB 17’s restrictions.)

Note that under the “control” definition, a restricted investor also cannot “direct or cause . . . the acquisition of an interest in real property” in Texas without violating SB 17’s restrictions. Restricted investors, therefore, should be wary of passive interests paired with contractual rights that permit them to “direct or cause” the acquisition of real property in Texas.

Indirect Acquisitions

The Proposed Rules also expansively scope in indirect acquisitions on both the acquiring and target sides of the acquisition. The definition of “control” scopes in “direct and indirect” control by restricted persons, and the definition of “purchase or otherwise acquire” includes not only a restricted person’s direct acquisition of land in Texas, but also a restricted person’s acquisition of an entity that owns land in Texas.

Accordingly SB 17 appears to cover even acquisitions of companies formed and headquartered outside of Texas if they happen to own or lease land in Texas when acquired by U.S. companies, if such acquirer is 10% or more indirectly owned by a Chinese company. This has far-reaching consequences for transactions involving restricted persons, even where the foreign owner is a minority interest holder far up the ownership chain.

Lease Renewals

The Proposed Rules also scope in successive leasehold arrangements for less than one year, if the total occupancy is for one year or longer. As noted above, SB 17 specifically excludes leases of less than one year, but the Proposed Rules include within the definition of “interests in real property in this State” successive short-term arrangements that create a leasehold interest of one year or longer. This language confirms that restricted persons cannot successively hold 11‑month leases and avoid SB 17’s restrictions.

Mandatory Reporting

The Proposed Rules also establish a mandatory reporting regime requiring any “facilitating entity” to report an acquisition in violation of SB 17 or face potential licensing consequences or professional disciplinary action.

“Facilitating entity” is defined by the Proposed Rules to include a “person or entity that, in the regular course of business, assists with, brokers, insures, finances, values, or processes” an interest in real property in Texas. The term includes, but is not limited to, mortgage lenders, title insurance companies, property insurers, appraisers, and licensed real estate professionals.

The result is an expansive obligation that exposes a wide range of real estate professionals and entities to potential consequences for not reporting violations of SB 17 that they knew or “should have known,” and increases the probability of enforcement of violations.

What about Federal Preemption?

The expansive nature of SB 17 and the Proposed Rules may pave the way for additional challenges of the law as federally preempted under the Supremacy Clause of the U.S. Constitution. Notably, the clear scoping in of indirect acquisitions of entities holding Texas real property overlaps with CFIUS’s jurisdiction over foreign acquisitions of U.S. businesses.

Affected parties may assert that SB 17, as interpreted through the Proposed Rules, regulates foreign investment transactions that are already subject to federal review under CFIUS and other federal authorities, such that they are preempted by federal law.

While some courts have considered this federal preemption argument in Texas and other states with similar laws restricting the acquisition of real estate, no court to date has entered a final decision on the merits of any of such challenge, with courts thus far opting to dismiss suits on threshold grounds.⁴

¹Act of June 20, 2025, 89th Leg., R.S. ch. 956 § 1(a), 2025 Tex. Gen. Laws 2140 (SB 17).  There are certain exceptions for acquisitions of real property by individuals, if used as a primary residence.

²See Electric Reliability Council of Texas, Nodal Protocols 2-54 (Apr. 1, 2026) (definition of “Lone Star Infrastructure Protection Act (LSIPA) Affiliate”).

³See 31 C.F.R. § 800.208(e)(5).

⁴See, e.g., Wang v. Paxton, 161 F.4th 357 (5th Cir. 2025) (affirming the lower court’s dismissal of the case for lack of standing).

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.