Texas Lassos Foreign Investment Regulation with Real Property Restrictions and Proposed “Texas Committee on Foreign Investment”

Similar state laws (such as those in Florida and Arkansas) have been enjoined as potentially unconstitutional because they are impliedly preempted by federal law, including due to the Committee on Foreign Investment in the United States (CFIUS). These cases, however, are still working their way through the courts. We expect that if these Texas bills become law they would be challenged in court, as well.

Texas Senate Bill 17: Real Property Restrictions

In March, the Texas Senate passed Senate Bill 17, which would prohibit individuals and entities with ownership from “designated countries” (currently China, Iran, North Korea, and Russia) from directly or indirectly owning real property in Texas, or from leases of 100 years or longer.

On Friday, May 9, the Texas House passed an expanded version of the bill, which would prohibit leases of one year or longer, and would permit the Texas Governor to designate additional countries. The House bill is now back with the Senate to review the House amendments.

Restrictions on the Purchase of Real Property under Senate Bill 17

The bills apply broadly to real property, including agricultural land, commercial property, industrial property, residential property, and water, ground water, and mineral rights. There are exceptions for U.S. citizens, and, in the House bill, U.S. permanent residents.

The bill’s effective date is September 1, 2025 and is not retroactive. However, it is not clear if lease renewals will be exempted from the restrictions. Accordingly, if the House bill is adopted, it may restrict those currently leasing property in Texas from renewing their lease (if such renewal is for a term of one year or longer). This could potentially impacting industrial companies with Chinese ownership that have made major investments in Texas real property that they have leased.

It also is not clear whether the bills restrict ownership only at a certain threshold or whether they apply to even a de minimis indirect ownership interest. As drafted, the bills appear to apply to any ownership interest, even a de minimis indirect ownership interest. As such, they could impact U.S. funds and REITs with passive economic minority owners from, say, China. It is possible, however, that the language will be clarified or interpreted through regulation to apply only to entities majority-owned by individuals and entities from designated countries.

Penalties for Violations

If an acquisition of real property is found to violate the law, the Attorney General can order divestiture through sale, termination of the lease, or other disposition of the real property. Under the Senate bill, proceeds from a sale would be remitted to the comptroller for deposit in the state’s general revenue fund after liens on the property are satisfied. Under the House bill, proceeds from the sale go first to satisfy any liens on the property, then “to pay the reasonable costs incurred by the state in enforcing” the law, then to the individual or entity that made the purchase in violation of the law. If the purchase or acquisition concerns a leasehold interest, the lease is voided.

Purchasers that intentionally or knowingly violate the law are also subject to a fine equal to 50 percent of the market value of the interest in real property that is the subject of the violation or $250,000, whichever is greater. The bills do not appear to restrict landowners from selling or leasing to individuals from or entities with ownership from designated countries. The purchaser alone would bear the risk in a sale.

The Proposed “Texas Committee on Foreign Investment”

In early March 2025, the Texas Legislature introduced Senate Bill (“S.B.”) 2117, to establish the Texas Committee on Foreign Investment (“TCFI”), which would be the first state body responsible for reviewing foreign transactions for potential national security risks.

The bill would require pre-closing notice of certain transactions to the Texas Attorney General. The Texas Attorney General would then initiate review and could potentially impose a mitigation agreement to address any security concerns identified.

On April 28, 2025, S.B. 2117 passed the Texas Senate by a wide margin, signaling strong legislative support. The House Committee on State Affairs has sent a substitute version of S.B. 2117 to the full Texas House for a vote.

Committee Composition

Modeled after CFIUS, the federal interagency body chaired by the Secretary of the Treasury, the TCFI would be chaired by a representative from the Office of the Governor and would include the Texas Attorney General, the Land Commissioner, the Comptroller, the Commissioner of Agriculture, and the heads of the Department of Public Safety, the Public Utility Commission, the Department of Information Resources, and the Railroad Commission of Texas.

Scope of Committee Review

The TCFI’s review jurisdiction would extend to a broad range of “covered transactions,” including mergers, acquisitions, leases, sales, or other transfers of the direct or indirect control of or interest in a business, real property, or other asset located in Texas. Transactions that must notify the TCFI involve “foreign entities,” meet a minimum dollar value or ownership percentage threshold to be set by the Texas Governor, and affect the state’s critical infrastructure, agricultural land, the sensitive personal data of Texas residents, or a strategic industry or assets identified by the Governor.

“Foreign entities” include individuals who are not citizens or lawful permanent residents of the U.S.; foreign governments; and entities organized in, or that have a principal place of business in, a foreign country, or that are controlled by a foreign person, government, or business. The Senate bill would exempt foreign entities from countries that are signatories to certain trade agreements with the United States.¹

The definition of “critical infrastructure” is expansive, and includes not only energy, emergency services, and transportation systems, but also “commercial facilities” and “health care.”

Texas Committee on Foreign Investment Review Process

Parties to “covered transactions” would be required to notify the Texas Attorney General of the transaction at least 90 days before the closing date. The Texas Attorney General would then conduct an initial review to determine whether further investigation is warranted. If so, the Attorney General would conduct a secondary investigation and submit a report to the TCFI.

The Texas Attorney General can, if they deem it necessary, propose to TCFI a mitigation agreement between the transacting parties and the state of Texas. Such agreements would impose conditions to mitigate identified security concerns, which could include requiring data protection protocols, security clearance requirements, or restrictions on foreign access to assets that are the subject of the transaction, and compliance reporting. TCFI can adopt or reject a proposed mitigation agreement. If rejected, the Attorney General must create a new mitigation agreement that addresses TCFI’s concerns with the prior agreement. Parties to a transaction subject to a mitigation agreement approved by the TCFI must comply with the terms of that agreement.

Compliance and Violation

If the Attorney General determines that a covered transaction requires a mitigation agreement, and the person either proceeds with the covered transaction without entering into such an agreement or violates a provision of a mitigation agreement. Violations can result in civil penalties of up to $50,000 per violation (including the ability to recover reasonable attorney ’s fees and other reasonable expenses incurred in bringing the action). The Attorney General may also seek an injunction to prevent the transaction or compel divestment.

Looking Forward

While this bill has yet to pass, companies with any foreign ownership considering transactions in Texas should be aware of the restrictions and notification requirements should it become law. Any analysis done under this potential Texas state law should be in addition to review of the already expansive jurisdiction of the Committee on Foreign Investment in the United States.

¹While it is not entirely clear which countries would be excluded under the Senate bill, at a minimum the Senate bill appears to exclude investment from entities from the following countries: Australia; Bahrain; Canada; Chile; Colombia; Costa Rica; Dominican Republic; El Salvador; Guatemala; Honduras; Israel; Jordan; Korea; Mexico; Morocco; Nicaragua; Oman; Panama; Peru; and Singapore.