Recent Developments
In March 2026, the Texas Attorney General issued a press release and proposed rules to implement and enforce SB 17, providing our first substantive insight into how the statute is expected to operate in practice. While the rules are not yet final (the proposed rules are now subject to a public comment period), they signal a notably expansive and enforcement-focused approach. The proposed rules materially expand the practical reach of SB 17 by emphasizing indirect ownership, enhanced investigatory powers, and active enforcement.
Broad Interpretation of Covered Interests
The proposed rules confirm that the Attorney General intends to interpret SB 17 broadly, particularly with respect to what constitutes an “interest” in real property. In addition to direct ownership, the rules indicate that indirect and beneficial interests may be subject to scrutiny. This approach is consistent with the statute’s already expansive definition of real property and covered interests, which includes leaseholds (≥1 year), easements, mineral interests, and other non-fee interests.
Focus on Ultimate Ownership and Control
A central theme of the proposed rules is the Attorney General’s focus on identifying ultimate ownership and control:
- The rules contemplate a “look-through” approach to entity structures to determine whether a prohibited party is involved;
- Majority ownership and control remain key statutory triggers, but the rules suggest that control and influence may be examined in practice, even where ownership is indirect; and
- The Attorney General may scrutinize organizational structures that appear designed to obscure prohibited ownership.
This guidance is particularly relevant in light of prior uncertainty regarding minority ownership and indirect investment structures under SB 17.
Enhanced Investigative Authority
The proposed rules formalize and expand upon the Attorney General’s investigative tools, including:
- Issuance of civil investigative demands and interrogatories;
- Coordination with the Texas Secretary of State and other agencies to obtain ownership and control information; and
- The ability to initiate investigations proactively, rather than solely in response to complaints.
These mechanisms build on the statute’s enforcement framework, which authorizes the Attorney General to investigate transactions and bring in rem actions against real property.
Affirmative Reporting Obligations for “Facilitating Entities”
The proposed rules would impose a new, affirmative compliance obligation on certain “facilitating entities” involved in real estate transactions. Under proposed Sections 67.2(3) and 67.4(e), these parties may be required to report suspected violations of SB 17 to the Texas Attorney General.
This represents a notable departure from the statutory framework, which does not impose an express duty on sellers, lessors, or other transaction participants to investigate or verify compliance. The rules, if adopted as proposed, would effectively extend enforcement risk beyond prohibited purchasers and lessees to a broader set of market participants.
In practice, this development is likely to necessitate enhanced diligence and compliance protocols, including more robust counterparty screening, expanded use of representations and covenants, and internal procedures for identifying and escalating potential compliance concerns.
Enforcement Posture
The accompanying press release underscores a strict enforcement posture, particularly with respect to transactions involving “designated foreign adversaries.” The Attorney General has indicated an intent to actively pursue violations using the full range of statutory remedies, including:
- Forced divestiture of property interests through court-appointed receivers;
- Civil penalties (the greater of $250,000 or 50% of market value); and
- Potential criminal liability for knowing violations.
While these remedies are set forth in the statute, the rules and press release emphasize that they are expected to be actively utilized.
Practical Implications
Although SB 17 does not impose an affirmative duty on sellers or lessors to verify compliance, the proposed rules suggest that market practice is likely to evolve toward increased diligence, including:
- Greater focus on beneficial ownership disclosures;
- Expanded representations and covenants regarding SB 17 compliance; and
- Consideration of indemnity protections tied to potential violations.
Accordingly, participants in Texas real estate transactions should anticipate heightened diligence expectations and increased scrutiny of ownership structures.
Leasing Considerations, Including Renewals and Structuring
A key practical issue is how SB 17 applies to existing leases entered into prior to the September 1, 2025, effective date. While the statute is not retroactive, emerging guidance indicates that:
- Renewals, extensions, and expansion options exercised on or after the effective date may be treated as new acquisitions subject to SB 17; and
- As a result, a tenant that was permitted to lease property prior to the effective date may be prohibited from renewing or extending that lease if it qualifies as a restricted party at the time of renewal.
This creates a significant issue for long-term occupiers (particularly in the industrial, logistics, and data center sectors) where tenants may have made substantial capital investments in leased premises.
Treatment of Serial Short-Term Lease Structures
The proposed rules also address potential structuring strategies designed to fall within the statutory exemption for leasehold interests of less than one year. Specifically, proposed Sections 67.2(5) and 67.6(b) indicate that the Attorney General may treat a series of successive short-term leases (e.g., repeated 364-day renewals) as a single leasehold interest exceeding one year in duration.
This interpretation is significant in light of the statutory exemption for leasehold interests with a term of less than one year, and the corresponding prohibition on longer-term leaseholds. By looking to the substance of the arrangement rather than its formal structure, the Attorney General’s approach limits the effectiveness of serial short-term leasing as a compliance strategy.
Accordingly, landlords and tenants should carefully evaluate lease structures that rely on renewal mechanisms or successive short-term terms, as such arrangements may be subject to recharacterization and potential enforcement risk under the proposed rules.
