A non-U.S. company that buys or sells U.S. real estate that is or once was used for agricultural purposes may face reporting requirements in connection with such transactions. These reporting obligations might apply whether or not the non-U.S. company typically engages in real estate transactions, and whether or not a specific transaction was centered on the transfer of real estate. Companies operating in the renewable energy space in particular should carefully evaluate these obligations, as solar and wind power generation projects are often developed on agricultural land. Significant fines can result from failure to disclose as required.
The Agricultural Foreign Investment and Disclosure Act (AFIDA)
The reporting obligations described above are contained in the Agricultural Foreign Investment and Disclosure Act (AFIDA), which is administered by the U.S. Department of Agriculture’s Farm Service Agency (FSA). The law, enacted in 1978 and implemented at 7 C.F.R. Part 781, requires certain entities to file form FSA-153 in the circumstances and according to the procedures described below.
Who Must File
Among other reporting triggers, a “foreign person” must file a report within 90 days of acquiring or transferring (i.e., selling) any interest in U.S. “agricultural land.” A foreign person also must file a report when it (i) holds or acquires any interest in agricultural land when not a foreign person, and subsequently becomes a foreign person; or (ii) holds or acquires any interest in land when such land is not agricultural land, and such land subsequently becomes agricultural land. In addition, if a foreign person submitted a report regarding agricultural land and such land ceases to be agricultural, then notification of this change must be submitted within 90 days.
Under the AFIDA regulations, “agricultural land” means land (i) used for forestry production or (ii) within the last five years, used for farming, ranching, or timber production (with limited exceptions). Further, an “interest” in agricultural land includes fee interests and leasehold interests of 10 years or more; it notably does not include contingent future interests (i.e., options).
For AFIDA purposes, a foreign person includes any U.S. entity in which “a significant interest or substantial control is directly or indirectly held” by a non-U.S. entity. “Significant interest or substantial control” means (i) with respect to a single person or entity or a group of persons or entities “acting in concert,” a 10% or more interest, and (ii) with respect to a group of persons or entities not “acting in concert,” a 50% or more interest. (AFIDA does not define “acting in concert.”)
How to File
The form FSA-153 must be filed with the FSA county office in the county where the land at issue is located, or where the FSA county office administering programs carried out on the land is located. There is no filing fee, and the filing generally may be transmitted by mail or email.
Comprehensive instructions regarding how to complete the form FSA-153 are laid out in the FSA Handbook. The Handbook explains that when reporting the foreign persons that hold a significant interest in or substantial control of the operative entity, only the first three tiers of ownership must be disclosed (even if there is no “foreign” owner until further up the organizational ladder).
Penalties for Failure to File
Significant penalties can result from failure to comply with these AFIDA reporting requirements. Late-filed reports are subject to a penalty of 0.1% of the fair market value (FMV) (as determined by the FSA) of the foreign person’s interest in the applicable agricultural land, for each week that the violation continues, up to a maximum of 25% of the FMV. The FMV of the land is determined as of the date the penalty is assessed.
These penalties are subject to downward adjustments in the FSA’s discretion, based on factors including (i) the total time that the violation existed; (ii) the method of discovery of the violation; (iii) any extenuating circumstances concerning the violation; and (iv) the nature of the information misstated or not reported, as applicable.