A Reminder About Alien Ownership Restrictions

Vol. 27 No. 1

Ms. Feriancek is a partner in the Denver office of Holland & Hart LLP and a member of the editorial board of Natural Resources & Environment.

Business entities formed in jurisdictions outside the United States—sometimes called “alien” companies—may invest in oil and gas, other natural resources, or other real property in the United States to diversify their holdings or gain access to energy or minerals that they need. In doing so, an alien company needs to comply with any federal and state laws and regulations that may restrict its ownership of real property. Those involved in such transactions need to be aware of and consider the effect of such laws and regulations.

Given the large amount of mineral lands in federal ownership (approximately 570 million acres, per various Bureau of Land Management websites), one statute that often is relevant is the Mineral Leasing Act of 1920 (MLA), as amended, 30 U.S.C. § 181, et seq. The right to develop oil and gas, coal, and certain other minerals (phosphates, oil shale, sodium, potash, sulfur) on unpatented federal domain land, and on private land in which the United States reserved the minerals, is acquired through leases granted under the MLA. The MLA specifies that deposits of leasable federal minerals are subject to disposition

to citizens of the United States, or to associations of such citizens, or to any corporation organized under the laws of the United States, or of any State or Territory thereof, or in the case of coal, oil, oil shale, or gas, to municipalities. Citizens of another country, the laws, customs, or regulations of which deny similar or like privileges to citizens or corporations of this country, shall not by stock ownership, stock holding, or stock control, own any interest in any lease acquired under the provisions of this chapter.

30 U.S.C. § 181.

Due to the statutory language and BLM’s implementing regulations (e.g., 43 C.F.R. §§ 3102.1–3102.3 for oil and gas; 43 C.F.R. §§ 3472.1-1–3472.1-2 for coal), a domestic corporation—not a limited liability company, master limited partnership, or other association—must appear in the ownership chain between the mineral lessee and the alien company or person. The oil and gas regulations state that if it is determined that a country has denied similar or like privileges to U.S. citizens or corporation, it would be on a list available at any BLM State Office; personnel at the Colorado State Office indicate no such list exists.

Control over deposits of gold and other nonleasable hardrock minerals on federal land are acquired by location of unpatented mining claims under the Mining Law of 1872 (Mining Law), 30 U.S.C. § 21, et seq., and the mining laws of the state in which the property is located. The Mining Law provides that mining claims may be located “by citizens of the United States and those who have declared their intention to become such.” 30 U.S.C. § 22. While that section does not mention corporate eligibility, the provision detailing proof of citizenship refers to “a corporation organized under the laws of the United States or any State or Territory thereof” and an “association of persons unincorporated.” 30 U.S.C. § 24. For a corporation, it is the jurisdiction of formation that determines its citizenship, but for unincorporated associations such as partnerships and limited liability companies, the entity is disregarded and the association’s members need to satisfy the citizenship requirement. Although the interest in mining claims of a person or entity not qualified by citizenship is voidable by the United States, rather than void, acquiring a voidable interest is a risk that a buyer may not wish to take. The mining laws of states such as Nevada and Oregon contain a citizenship requirement very similar to that in the Mining Law. See Nev. Rev. Stat. § 517.010; Or. Rev. Stat. § 517.010.

Further, while the laws of most states no longer prohibit ownership of real property by aliens or by alien companies that properly register to do business in the state, a number of state statutes impose some restrictions on real property acquisition by alien individuals and companies. Some such statutes are specific to mining rights on state-owned land. Those eligible to acquire exploration and mining rights on public land in Alaska, for example, include aliens who have declared their intention to become U.S. citizens or if the laws of their country grant like privileges to U.S. citizens, and associations of such persons, but not alien corporations. Alaska Stat. § 38.05-190(a). An unqualified person who acquires exploration or mining rights by operation of law has two years to dispose of the property. Alaska Stat. § 38.05-190(b). In California, those eligible to hold mineral leases and prospecting permits on state land include aliens persons or associations of aliens who have declared their intention to become U.S. citizens or who are citizens of a country that provides for similar or like privileges to U.S. citizens, and corporations 90 percent or more of whose shares are held by eligible persons, associations, or corporations. West’s Ann. Cal. Pub. Res. Code § 6801. Leases of oil and gas, coal, and other minerals on state land in Montana may not be issued to any citizen of another country or partnership, corporation, association, or other legal entity controlled by foreign interests unless that country provides for similar or like privileges to U.S. citizens. Mont. Code Ann. § 77-3-305(1). New York restricts applications for permits, consents, or leases of deposits of state-owned minerals to U.S. citizens. McKinney’s Public Lands Law § 81. Other statutes not detailed here limit the purchase or acquisition of state-owned land in Arizona, California, Idaho, Missouri, and Oregon by aliens and alien companies.

On the other hand, a couple of states have alien ownership restrictions but except certain mineral leases from coverage of the statute. A Nebraska statute generally prohibits aliens and corporations not incorporated under the laws of that state from taking title to real estate or any leasehold lasting more than five years. Neb. Rev. Stat. § 76-402. One exception allows alien corporations doing business in the state to hold oil and gas leases for a period as long as ten years and so long thereafter as such substances can be produced in commercial quantities. Neb. Rev. Stat. § 76-404. Also, in Wisconsin, nonresident aliens, alien corporations, as well as corporations, limited liability companies, partnerships, or associations more than 20 percent of whose stock or other indicia of ownership is owned by aliens may not acquire or own an interest in more than 640 acres of land. Wis. Stat. Ann. § 710.02. However, that statute excludes exploration mining leases, land used for mining, and leases for exploration of oil, gas, coal, shale, and related hydrocarbons from the acreage limit. Id.

One type of real property subject to alien ownership restrictions in several states is agricultural land. For example, subject to certain listed exceptions, a Minnesota statute prohibits an alien corporation, partnership, limited partnership, trustee, or other business entity from acquiring legal or beneficial title to agricultural land unless at least 80 percent of each class of stock or ownership interest is held by U.S. citizens or permanent resident aliens. Minn. Stat. Ann. § 500.221, subd. 2. North Dakota prohibits an individual who is not a U.S. citizen, a citizen of Canada, or a permanent resident alien of the United States from acquiring any interest in more than 640 acres of agricultural land (subject to some exceptions) and prohibits partnerships, limited liability companies, and other business entities from obtaining title to agricultural land unless the ultimate beneficial interest of the entity is held by U.S. citizens or permanent resident aliens. N.D. Cent. Code § 47-10.1-02. Other states that limit the agricultural land that nonresident aliens may own include Missouri, Pennsylvania, and South Dakota.

A few states continue to have broad alien ownership restrictions. In Oklahoma, the state constitution prohibits any alien person who is not a bona fide Oklahoma resident from acquiring title to or owning land in Oklahoma and requires the legislature to enact laws providing that such a person who acquires real estate in Oklahoma by devise, descent, or otherwise divest it within five years upon condition of escheat or forfeiture to the state. Okla. Const., Art. 22, Sec. 1. Thus, an alien who ceases to be a bona fide resident of Oklahoma has five years in which to sell land in Oklahoma. 60 Okla. Stat. Ann. § 122. Another law prohibits foreign corporations from being formed or licensed in Oklahoma for the purpose of engaging in farming or ranching or owning or leasing land to be used in farming or ranching and imposes requirements on the partners of partnerships and members of limited liability companies that may engage in ranching or farming. 18 Okla. Stat. Ann. §§ 951–955. Kentucky also has a restrictive alien ownership law; it limits the aliens who can own property in that state to those who are not enemies and have declared their intention to become U.S. citizens. Ky. Rev. Stat. Ann. § 381.290. Under Kentucky law, the real estate of a nonresident alien may be escheated to the state eight years after he acquires title, unless he becomes a U.S. citizen. Id. § 381.300.

This article does not contain a comprehensive list of all laws restricting real property ownership by aliens and alien companies. Rather, I have tried to show the wide variety in statutory restrictions that exist and to identify some of the statutes most likely to affect interests included in a property package. As noted, some statutes affect not only direct ownership of property by an alien company, but also ownership of a corporation or other business entity that owns real property. Thus, before an alien company acquires real property in the United States or a company that owns such real property, the laws of the jurisdictions in which the property is located should be reviewed for impediments to the planned transaction. Depending upon what restrictions apply, it may be necessary for the alien company to reconsider the deal structure or make plans to divest itself of prohibited interests within the time specified in a particular statute.

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