February 21, 2024

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The Committee on Foreign Investment in the United States (“CFIUS“) is an interagency committee chaired by the Secretary of the Treasury that screens certain foreign investments or acquisitions of U.S. businesses or real estate to determine if they could impair US national security. If CFIUS determines that it has jurisdiction and that a transaction raises relevant national security concerns, CFIUS can request the parties to agree to certain mitigation measures. If the parties refuse to accept mitigation measures or if CFIUS determines that its concerns cannot be mitigated, CFIUS will ask the parties to withdraw from or unwind their transaction. If the parties refuse, CFIUS will notify the President of the United States of that transaction. The President will then decide, upon advice from CFIUS, whether to exercise his legal authority to suspend, block, or unwind the transaction.
As a result of the Foreign Investment Risk Review Modernization Act (FIRRMA), CFIUS' authority and resources have significantly increased. Current CFIUS regulations are titled (i) Provisions Pertaining to Certain Investments in the United States by Foreign Persons (31 CFR Parts 800 and 801) and (ii) Provisions Pertaining to Certain Transactions by Foreign Persons Involving Real Estate in the United States (31 CFR Part 802). CFIUS regulations not only impact certain foreign investments in US businesses, they also cover certain types of foreign investments in US real estate, even if there is no US business involved.
Part 802 authorizes CFIUS to review a purchase, lease, concession, or other type of transaction pertaining to certain real estate (discussed below) that provides a foreign person with three or more of the following rights to (i) physical access to the real estate; (ii) exclude others from physically accessing the real estate; (iii) improve or develop the real estate; or (iv) attach fixed or immovable structures or objects to the real estate. CFIUS's Part 802 jurisdiction applies to investments in certain types of real estate that consist of, are proximate to, or are within a designated area shared with certain air or maritime ports, military installations, or other sensitive facilities identified in an appendix to Part 802. One must screen real estate locations to determine if they satisfy certain proximity requirements that trigger Part 802 jurisdiction. These screenings rely on tools provided by CFIUS itself as well as other sources.
Part 802 does not give CFIUS unrestricted jurisdiction over real estate transactions. Those regulations exempt from CFIUS's authority certain types of transactions including, but not limited to, (i) single “housing units,” or (ii) “urbanized areas” or “urban clusters” (defined by the US Census Bureau) that are not in close proximity to certain designated military installations or located within, or function as part of, covered ports. These exemptions are narrowly tailored and require close review before any party relies on them.
Also, certain foreign investors that satisfy specified criteria and have ties to “excepted real estate foreign states” can claim immunity from CFIUS jurisdiction under Part 802. Currently, Australia, Canada, New Zealand, and the United Kingdom are the only exempt foreign states. Investors seeking to take advantage of these exemptions must be able to demonstrate, among other matters, that they have a history of complying with certain laws, orders, and regulations relevant to national security matters. Several other pre-requisites must also be satisfied before qualifying for these exemptions.
Part 802 also contains limited exemptions to CFIUS's jurisdiction in certain cases involving (i) the lease or concession of real estate in air or maritime ports (a) only for the purpose of retail sales or (b) involving a foreign air carrier that has satisfied security program standards accepted by the Transportation Security Administration; (ii) the purchase, lease or concession of certain commercial space in multi-unit commercial buildings (which could apply to many routine commercial real estate investments); or (iii) real estate owned by Alaska Natives or held in trust by the United States for certain native populations. Regulators have carefully crafted language concerning all of the above exemptions. Parties must review the specific language of Part 802 before relying on these exemptions.
Real estate transactions subject to Part 802 are considered covered transactions subject to the CFIUS voluntary filing process, either in the form of a long-form notice or a short-form declaration. Parties that do not file a voluntary submission with CFIUS could face deal uncertainty given that CFIUS can on its own initiative review and challenge a non-notified real estate deal at any time including months or years after the deal closes. CFIUS can also direct parties to submit a filing if they did not so voluntarily. Parties that submit a voluntary or directed filing that meets CFIUS approval qualify for safe harbor protection against further CFIUS challenges in the future.
Part 802 does not impose any mandatory filing requirement with respect to real estate deals. However, if a particular transaction involving real estate is also connected to a US business, then CFIUS regulations under Parts 800 and 801 will apply instead of Part 802. This could mean that a mandatory declaration must be filed if certain triggers are satisfied under those regulations. Please refer to our CFIUS Guide available at CFIUS-Overview.pdf (rimonlaw.com) for further information on CFIUS and mandatory filings.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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