Land acquisition and use

Legislation

Identify and summarise the enacted legislation addressing agricultural property transactions in your jurisdiction. Outline how farmland is typically held.

No federal laws restrict the purchase or sale of privately held agricultural property in the United States to foreign individuals or entities. Interested foreign parties may enter into contracts to purchase farmland or other agricultural property.

Although no federal laws restrict these transactions, certain guidelines allow the United States Department of Agriculture (USDA) to obtain information about the purchase of farmland by foreign parties. Under the guidelines, foreign parties must report purchases of farmland within 90 days of closing or they may be subject to civil liability, including the reversion of property to the state jurisdiction. In 2015, the USDA reported that approximately 30 million acres of agricultural property, including farmland, was held by foreign parties.

Approximately 30 states do restrict or limit foreign parties from purchasing farmland within their jurisdiction.

In 2018, the federal government passed the Agriculture Improvement Act (the Farm Bill). The Farm Bill re-enacted certain restrictions regarding the conservation of land. These restrictions incentivise farmers with farmland located in designated wetland areas and erodible farmland to strengthen their conservation efforts by providing compensation for these efforts.

Agricultural property owned by the federal government is generally not available for purchase, unless there is a surplus, which may be sold via a competitive process.

Non-agricultural land rules

Outline any rules related to use of farmland for non-agricultural uses.

As the percentage of Americans living in urban areas continues to grow, lawmakers have increasingly focused on preserving farmland. Concerns over food security, environmental protections and urban sprawl have spurred this focus. To address the concerns, every state has enacted laws and regulations designed to preserve existing farmlands and protect farmers. These measures incentivise farming in rural areas and restrict non-agricultural uses of rural land.

Right-to-farm laws seek to protect qualifying farmers from civil actions. These statutes, to varying degrees, protect farmers from nuisance actions that would curb normal farming operations and protect farmers against local regulations that would otherwise limit normal agricultural practices. These laws also contain local guidelines designed to restrict normal farming and agricultural operations. In addition, some states have implemented tax incentives for agricultural landowners.

Certain states have implemented zoning regulations to specifically preserve land for agricultural purposes, limit the sale of parcels for non-farming uses and dictate minimum parcel sizes. Generally, these zoning regulations exclusively limit land use in areas designed for farming to active farming and other business purposes that are incidental to the processing and marketing of farm products. Whether these incidental uses meet the zoning regulations is assessed on a case-by-case basis.

Several states have also implemented planning boundaries known as urban growth boundaries (UGBs) to limit sprawl and promote inward urban growth. Under UGBs, urban growth cannot extend past defined boundaries.

Lending

What special rules are important to agricultural lending in your jurisdiction?

The issues that distinguish agricultural lending from other lending are mostly found in individual states’ laws, with a narrow federal overlay. Primary concerns include:

  • ‘secret liens’: These include (among other things) state statutory liens on crops and animals in favour of suppliers of seed, fertiliser, feed and other inputs. They also include trusts imposed under the federal Perishable Agricultural Commodities Act, the federal Packers and Stockyards Act and similar state laws that benefit producers, processors and other sellers;
  • the Federal Food Security Act (FSA): The FSA changes the rules regarding priority between buyers of farm products in the ordinary course of business and secured lenders. Depending on the state, lenders to farmers may need to send notices to potential buyers or file ‘effective financing statements’ (in addition to UCC financing statements) to protect their security interests. Lenders to buyers from farmers should confirm that buyers have systems to ensure compliance with the FSA;
  • limitations on farm ownership: Some states restrict ownership of farmland by business entities (such as corporations) and by non-US citizens. In addition, the federal Agricultural Foreign Investment Disclosure Act requires disclosure of farmland ownership by non-US citizens; and
  • remedial laws: Some states have rules for foreclosure and other enforcement actions that provide additional protections for agricultural producers. These may require mediation before other remedies can be pursued or extend mortgage foreclosure and redemption periods, among other things. At the federal level, Chapter 12 of the Bankruptcy Code provides a favourable restructuring option for eligible family farmers.
Publicly controlled property

Describe any rules relating to public control of farm property in your jurisdiction. What enacted legislation governs them?

The US Supreme Court has repeatedly established that, under the Fifth Amendment to the US Constitution, the federal government has a right to take privately owned land, which is extended to state governments under the Fourteenth Amendment. Under this right, known as ‘eminent domain’, the government can take private property so long as the taking is for ‘public use’ and the landowners are provided with ‘just compensation’. There is no specific definition for public use, but courts have construed the term broadly to include most purposes that would yield a community benefit. Additionally, courts have generally defined ‘just compensation’ as the fair market value of the property. Courts have found that even when a taking is temporary, the federal government is required to provide just compensation.

There are two main types of takings as defined under the Fifth Amendment: (1) physical; and (2) regulatory. Physical takings are generally defined as physical interference with a private landowner’s use of their property. Identifying this type of a taking is generally relatively straightforward.

Regulatory takings are much harder to prove, and there is no clear test to determine this type of a taking. Courts have found that a regulatory taking occurs when a governmental regulation places restrictions on property that make the land unusable for the landowner’s purpose. Zoning code regulations that restrict or prohibit certain usage rights is a common example of a regulatory taking.

Foreign ownership restrictions

Are there any restrictions on foreign ownership of farm property in your jurisdiction? What enacted legislation governs them?

US federal law generally does not prohibit foreign ownership of farmland or other kinds of agricultural property. However, under the Agricultural Foreign Direct Investment Disclosure Act, the United States Department of Agriculture requires foreign investors to report considerable information about the property and the reporting party within 90 days of purchase or sale. Failure to make required reports can result in civil penalties of up to 25 per cent of the property’s fair market value.

In addition, approximately 30 states have laws designed to restrict foreign ownership of agricultural property or require disclosure of foreign persons and entities acquiring agricultural property in their state. States in the Midwest tend to have the most extensive restrictions.

Other laws and regulations may be implicated where a foreign entity is acquiring agricultural property. The Committee on Foreign Investment in the US reviews foreign investment in companies to determine whether the proposed transaction has potentially negative national security implications. Under the Domestic and Foreign Investment Disclosure Act, parties acquiring an interest of 5 per cent or more in a company registered with the Securities and Exchange Commission must report certain identifying information (including information regarding citizenship status and residence) to the government. Foreign entities acquiring interest in agricultural property are subject to US federal and state antitrust laws and related reporting requirements. Where a proposed acquisition or other transaction meets certain financial thresholds, the parties are required to report their proposed transaction to the Department of Justice and the Federal Trade Commission (for clearance under the Hart-Scott-Rodino Act).