Overview
Texas Senate Bill 17 (SB 17), signed by Governor Greg Abbott on June 20, 2025, and effective September 1, 2025, establishes sweeping restrictions on the acquisition of real property interests by individuals and entities connected to certain “designated countries,” currently China, Russia, Iran, and North Korea. The law is codified in Subchapter H of Chapter 5 of the Texas Property Code and reflects the state’s stated national security concerns about foreign influence and ownership of land within its borders.
SB 17 applies prospectively only. The statute expressly provides that transactions occurring before September 1, 2025, are governed by prior law. However, acquisitions on or after the effective date (including new commercial leases of one year or more) fall squarely within the new restrictions.
Scope of the Law
SB 17 prohibits the purchase or acquisition of any “interest in real property,” a phrase defined broadly to include fee simple title, leasehold interests of one year or more, easements, mineral and water rights, groundwater, standing timber, mines, quarries, agricultural land and improvements, commercial property, industrial property, and residential property. This expansive definition is identical to the statutory language and was emphasized in multiple industry commentaries.
For commercial real estate practitioners, the most significant impact is the treatment of long-term leases as acquisitions of an interest in real property. Under SB 17, a commercial lease with a term of one year or longer is treated the same as a purchase for compliance purposes.
Who Is Prohibited?
SB 17 prohibits the following persons and entities from acquiring interests in Texas real estate:
- Governments of designated countries.
- Entities headquartered in a designated country, directly or indirectly held or controlled by a designated-country government, designated by the governor as national security threats, or majority-owned by prohibited individuals.
- Entities majority-owned by other prohibited entities.
- Individuals who are:
a. domiciled in a designated country (with a narrow homestead exception),
b. citizens of a designated country residing abroad without naturalization in their country of residence,
c. unlawfully present in the United States,
d. acting as agents of a designated country, or
e. members of the ruling political party of a designated country.
SB 17 also allows the governor, after consulting the Department of Public Safety (DPS) and the Homeland Security Council, to designate additional countries, transnational criminal organizations, or other entities as prohibited.
Exemptions
The following are exempt from the law:
- U.S. citizens and lawful permanent residents.
- Entities owned or controlled exclusively by U.S. citizens or lawful permanent residents, provided no prohibited individual holds an interest or control.
- Leasehold interests shorter than one year.
- Individuals from designated countries who are lawfully present and residing in the U.S. acquiring a residential homestead.
The exemptions function as safe harbors, but they do not resolve certain ambiguities—particularly involving minority ownership or passive investment by foreign individuals in multilayered entity structures.
Enforcement and Penalties
The Texas Attorney General (AG) is responsible for implementing, investigating, and enforcing SB 17. The AG must establish procedures for reviewing real estate transactions, conducting investigations, and determining whether enforcement actions are appropriate.
If a violation is suspected or found:
- The AG may bring an in rem action against the property in the district court of the county where it is located.
- The AG must record notice of the action in the county property records.
- If a court determines a violation occurred, it must order divestiture and appoint a receiver to manage and sell or dispose of the property interest.
Penalties include:
- Civil penalties for companies and entities of the greater of $250,000 or 50% of the market value of the property interest.
- State jail felony charges for individuals who intentionally or knowingly violate the law.
- Forced divestiture, with proceeds (after liens and state enforcement costs) returned to the violator.
Importantly, a purchase or acquisition that violates SB 17 is not automatically void. However, a leasehold interest of one year or more acquired in violation of the Act is void and unenforceable. This distinction creates elevated risk for commercial landlords and tenants.
Impact on Commercial Leasing Transactions
Because commercial leases with terms of at least one year constitute an “interest in real property,” SB 17 has significant implications for Texas landlords, tenants, lenders, and property managers.
Key effects include:
- Leases acquired by prohibited parties on or after September 1, 2025, are void and unenforceable.
- While sellers and lessors bear no statutory duty to investigate a counterparty’s compliance, entering into a void lease can cause material disruption.
- Renewals or extensions of leases may constitute new “acquisitions,” though the statute does not expressly address this. Lessors should assume that renewals require fresh compliance review.
- Indirect ownership raises unresolved questions; for example, whether a minority investment by a prohibited individual in an upper-tier entity affects eligibility. Current statutory language suggests the prohibition applies only to entities majority-owned or majority-controlled by prohibited individuals, but this remains an area where AG rulemaking may provide further clarity.
Practical Guidance for Commercial Landlords and Counsel
- Screen Tenants Early: Conduct due diligence on ownership, control, and beneficial owners before negotiating or executing any lease.
- Add SB 17 Compliance Clauses: Include representations, warranties, covenants, and indemnification provisions tailored to SB 17.
- No Duty to Investigate, but Risk Remains: Although lessors are not required to verify compliance, prudent parties should adopt procedures to avoid entanglement with void leases or AG enforcement actions.
- Track Rulemaking: The AG is required to adopt rules; guidance is expected in late 2025.
- Coordinate with Lenders: Lenders may require compliance certifications as conditions precedent in financing transactions.
- Monitor Renewals: Treat renewals and extensions as potential new acquisitions requiring updated compliance review.
Litigation and Constitutional Challenges
On July 3, 2025, the Chinese American Legal Defense Alliance (CALDA) filed a federal lawsuit challenging SB 17 on multiple grounds, including:
- Equal Protection and Due Process violations,
- federal preemption under FIRRMA and CFIUS authority,
- Fair Housing Act violations, and
- vagueness regarding key statutory terms such as “domicile.”
The outcome of this litigation could significantly affect enforcement, particularly in the context of commercial leasing and entity ownership.
Conclusion
SB 17 represents a major shift in Texas property law and applies far beyond traditional land purchases. Commercial leases of one year or more, easements, and other partial interests are now regulated acquisitions. While the law aims to address national security risks, it introduces new compliance obligations and substantial uncertainty into Texas real estate markets, particularly for commercial landlords and tenants.
Until further rulemaking and judicial interpretation occur, prudent parties should adopt enhanced due diligence and robust contractual protections when engaging in commercial leasing transactions involving any foreign individuals or entities.
