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On March 27, 2026, the Texas Attorney General issued proposed rules pursuant to Senate Bill 17, which introduces a new Chapter 67 in Title 1, Part 3 of the Texas Administrative Code to implement and administer Subchapter H under the Texas Property Code. The stated purpose of this legislation, which took effect September 1, 2025, is to address national security concerns raised by ownership of Texas land by unfriendly foreign actors.
As discussed in our October 9, 2025, client alert, S.B. 17 added a new Subchapter H to Chapter 5 of the Texas Property Code. Subchapter H prohibits entities, companies, organizations, and individuals of designated countries from purchasing or otherwise owning an interest in real property in Texas. The law designates China, Russia, Iran, and North Korea as countries of concern and authorizes the Texas Attorney General to add other countries to the list based on the latest threat assessments identified by the U.S. Director of National Intelligence. Prohibited companies include companies “headquartered” in a country of concern. A citizen or national of a designated country falls within the prohibition unless he or she is a “lawful permanent resident of the United States.”
Judicial challenges to Subchapter H on constitutional grounds have so far not been successful, with the U.S. Court of Appeals for the Fifth Circuit affirming in Wang v. Paxton in December 2025 that the plaintiff lacked the necessary standing to challenge the new law. However, no courts have to date ruled on the merits of challenges to these types of laws.
Mandated Reporting for Real Estate Professionals
Most significantly, the proposed rules require “facilitating entities” in the real estate industry, including mortgage lenders, title insurance companies, property insurers, appraisers, and licensed real estate agents, to report to the Office of the Attorney General any suspected violations of Subchapter H. A facilitating entity must submit a complaint if such entity knows or should have known, after reasonable due diligence, that a purchase or acquisition violates Subchapter H. Failure to file a complaint could result in a referral by the Office of the Attorney General to an appropriate licensing authority or professional disciplinary authority for disciplinary action. The reporting duty also applies to post-closing transfers or assignments to parents, subsidiaries, affiliates, or other entities under common ownership or control that are structured to effect or conceal an otherwise prohibited acquisition. The proposed rules also authorize any person to submit a complaint. If enacted, this provision, particularly the use of the negligence standard to trigger a reporting obligation, could impose a new significant compliance obligation on the commercial real estate industry in Texas.
Expanded Scope of “Control”
The proposed rules also provide additional clarity to Subchapter H. For example, the lack of a definition in the statue for “control” or “ownership” with respect to corporate parties has generated confusion since the law’s enactment. The Office of the Attorney General proposes to broadly define “control” to mean directly or indirectly holding the power to direct or cause (a) the direction of an entity’s management or policies, or (b) the acquisition or disposition of an entity’s real property interest in Texas, whether through ownership, contract, office, position or otherwise. Under the proposed rules, five categories of persons are deemed to exercise control of an entity: (i) general partners; (ii) managing members; (iii) shareholders or stockholders holding 10% or more of voting interests; (iv) executive officers; and (v) any person with the present or future right to acquire or dispose of an interest in Texas real property held by such entity. In particular, the 10% threshold could significantly expand the need for due diligence into beneficial ownership before a real estate transaction could close in Texas.
Restrictions on Short-Term Leases
Subchapter H excludes the law’s application to leasehold interests or improvements constructed on leaseholds if the duration is less than one year. Providing much-anticipated clarification, the proposed rules attempt to cabin this exception by providing that using renewal terms, including options to renew, that could extend a lease beyond one year, or using a series of one-year leases that in substance create a multi-year lease, would cause the lease to fall outside the exception. This could create a new variable for landlords leasing to tenants from a designated country, given the standard features in leases.
Application to Indirect Purchases and Acquisitions
The proposed rules provide further guidance with respect to the meaning of “purchase or otherwise acquire,” expanding the term to include certain indirect purchases and acquisitions. Under the expanded definition, any transaction pursuant to which a person or entity obtains control of an entity that owns a real property, regardless of whether such entity acquired the real property prior to the effective date of the law, would trigger the application of Subchapter H. Such transactions include an entity’s redemption or repurchase of its outstanding equity. These clarifications bring within Subchapter H’s purview changes of control and internal restructurings of entities that own real estate despite the fact that no direct sale of real estate occurs.
Creation of Enforcement Unit
The proposed rules also create a dedicated unit within the Office of the Attorney General to enforce Subchapter H and describes the unit’s core functions, further demonstrating the seriousness with which the Texas Attorney General takes strict compliance with Subchapter H.
Key Takeaways
While the proposed rules do provide clarity on key issues that practitioners have been speculating about since Subchapter H’s enactment, they also may also impose new reporting requirements and due diligence responsibilities on the commercial real estate industry in Texas.
The public comment period for the proposed rules closed on April 26 and the Office of the Attorney General is expected to publish a final rule in the near future. Lewis Brisbois will continue to monitor developments in implementing Subchapter H and will provide an update when the Office of the Attorney General issues final regulatory guidance.
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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