USA: when is a real estate token a security under federal law?

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Kooky

Builder of Shaka, the payment router that pays every agent their commission on closing date.

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A token that stands for a share of an apartment block looks like a new thing. Under United States federal law the first question about it is an old one: is it a security? The answer decides whether the offer has to be registered with the Securities and Exchange Commission, who is allowed to buy, how the token may be advertised and when it may be resold. It matters to the sponsor who structures the deal, to the investor who buys a fraction, and to the real estate professional who is asked to introduce one to the other.

The question has had a fresh official answer since the spring. On 17 March 2026 the Commission issued an interpretation of how the federal securities laws apply to certain crypto assets, joined by the Commodity Futures Trading Commission, and it took effect on 23 March 2026. This guide follows that release, a statement published by SEC staff on 28 January 2026 about securities put on a blockchain, and the exempt offering rules as they stand in the Electronic Code of Federal Regulations. One limit applies throughout. None of the SEC documents read for this guide deals with tokenised real estate by name, so what follows describes the general rules and how they are built, and it covers federal law only.

SEC and CFTC, Release Nos. 33-11412 and 34-105020, issued 17 March 2026.

What federal law means by a security

Three federal statutes each carry their own definition of the word. The SEC staff statement of 28 January 2026 lists them: section 2(a)(1) of the Securities Act, section 3(a)(10) of the Exchange Act and section 2(a)(36) of the Investment Company Act. The definitions name familiar instruments, such as stock and debt, and they also name a wider one, the investment contract, which is where most arguments about tokens take place.

The consequence of falling inside the definition is stated plainly in the same staff statement. Under the Securities Act, every offer and sale of a security must be registered unless an exemption is available, and that holds whatever format the security takes. A share recorded on paper, in a database or on a blockchain is treated the same way.

The two documents differ in rank. The staff statement, issued by the divisions of Corporation Finance, Investment Management and Trading and Markets, says of itself that it is not a rule, a regulation, guidance or a statement of the Commission, and that it has no legal force or effect. The March release is an interpretation adopted by the Commission itself.

The staff statement also supplies the vocabulary. Tokenisation, in its wording, means creating a digital representation of a tangible or intangible asset using distributed ledger technology.

The Howey test, a case about land

The investment contract was defined by the Supreme Court in SEC v. W.J. Howey Co., decided in 1946. As the March release restates it, an investment contract involves an investment of money, in a common enterprise, with a reasonable expectation of profits to be derived from the efforts of others. All three parts have to be present.

The case is worth knowing in a property magazine because it was a property deal. The release recalls that the promoter sold parcels of citrus grove, paired them with service contracts and shared the profits, and that the Court treated the package as an investment contract rather than as a simple sale of real estate. The buyers, in the passage the release quotes, had no desire to occupy the land or to develop it themselves. They were drawn by the return.

A second Supreme Court decision marks the other side of the line. In United Housing Foundation, Inc. v. Forman, decided in 1975, the Court dealt with purchases motivated by use or consumption. The release draws the general lesson: the securities laws generally do not apply to things bought for personal use or consumption, and they do not apply where buyers want to occupy land or develop it themselves.

Two more points from the release shape every analysis. Courts look at the economic reality of an arrangement and not at the label put on it, so calling something a membership, a utility or a deed changes nothing if the substance is an investment. And the efforts of others must be what the release calls essential managerial efforts. Administrative or ministerial tasks do not satisfy that part of the test.

A footnote of the release speaks directly to property. Courts, it notes, have found that assets which are not securities in themselves, real estate among them, have been offered and sold subject to investment contracts.

What changed on 23 March 2026

According to the SEC's press release of 17 March 2026, SEC Chairman Paul S. Atkins presented it as an acknowledgement that most crypto assets are not themselves securities, and CFTC Chairman Michael S. Selig joined the action for his agency.

It replaces an earlier reference point. Since 3 April 2019 the market had worked from a framework for analysing digital assets as investment contracts, written by SEC staff. The release supersedes that framework, and the SEC's page for it, updated on 20 March 2026, now labels it withdrawn.

The release says that it does not supersede or replace the Howey test, which it describes as binding legal precedent. The test of 1946 still decides; the interpretation explains how the Commission applies it to crypto assets, and sorts those assets into five categories.

The table has no row for real estate, and the release offers none. A property token has to be placed by looking at what it actually gives its holder, which leads to two distinct routes.

Two routes by which a property token becomes a security

The first route is the digital security. The release defines it as a traditional financial instrument represented by a crypto asset, where the record of ownership is kept wholly or partly on a crypto network. The staff statement of January uses the same idea under the name tokenised security: a financial instrument that already falls within the statutory definition of a security, formatted as or represented by a crypto asset.

Here the analysis is short. If the thing behind the token is a share in a company, an interest in a fund or a debt instrument, it was a security before anyone put it on a ledger. The release is direct on the point: a security remains a security whether it is issued onchain or offchain, whatever its format or label, and it does not lose that status because it also offers benefits that are not financial.

The second route is the investment contract. The token, or the asset it points to, is not a security in itself, but the way it is sold makes the sale an investment contract under Howey. This is the route the citrus groves took in 1946, and the release keeps it open for every category in the table: any crypto asset that is not a security can be sold subject to an investment contract.

The passage on collectibles shows how the Commission reasons about fractions. A fractionalised digital collectible, or an interest that lets people acquire a fractional share of a single collectible, could amount to the offer of a security, the release says, where the offering involves essential managerial efforts from which buyers would reasonably expect profits. A footnote adds that fractional interests in an artwork may be securities even though the artwork itself is not. The release does not extend that passage to buildings in so many words.

The promises that create an investment contract

For the second route the release sets out when the investment contract begins, what carries it and when it stops. Each stage rests on what the issuer said and did.

Timing is strict at the first stage. Statements made after a sale do not turn that earlier sale into an investment contract, according to the release.

The source of the promise matters as well. The release lists the channels it has in mind: written or oral agreements, the issuer's regular website or official social media accounts, direct communications, public filings, and documents clearly attributable to the issuer, such as a whitepaper. What an unconnected third party says about the asset generally does not count, unless the issuer authorised the statement and it was conveyed to purchasers.

The end of the contract is not the end of responsibility. Issuers remain liable for a failure to register and for anti-fraud violations, including misstatements and omissions, even after the investment contract has ended.

Set beside a property deal, the first stage is where attention usually goes. A sponsor who sells fractions of a rental building and undertakes to find tenants, collect rent, maintain the property and decide when to sell is describing efforts of a managerial kind, and buyers who never set foot in the building are relying on them. Whether those efforts are essential and managerial in the sense of the release, or merely administrative, depends on the facts of each arrangement.

Issuer tokens and third-party tokens

Both SEC documents separate tokenised securities into two groups: those tokenised by or for the issuer, and those tokenised by a third party unaffiliated with the issuer. The difference decides what the holder really owns.

In the issuer-sponsored model described by the staff statement, the issuer or its agent builds the ledger into its master securityholder file, so that a transfer of the crypto asset produces a transfer of the security on that file. The statement adds that one class of security may be issued in both traditional and tokenised formats, and that a tokenised security may belong to the same class as the traditional one if it is substantially similar and carries substantially similar rights, a point it ties to sections 12(g)(5) and 15(d)(1) of the Exchange Act.

Third-party models come in two forms in the staff statement. In the custodial form, a third party holds the underlying security and issues a crypto asset that evidences a security entitlement. In the synthetic form, the holder receives exposure to a referenced security without holding it. The statement describes a linked security as one that gives synthetic exposure without being an obligation of the issuer of the referenced security; it can be debt, such as a structured note, or equity, such as exchangeable stock.

The warnings attached to third-party tokens are specific. The release says of tokenised securities that the rights of a token holder may be materially different from those of the holder of the underlying security, including economic and voting rights. The staff statement adds that holders may face risks linked to the third party, such as its bankruptcy, that a holder of the underlying security would not necessarily face. It notes that a custodial third party may be deemed an investment company under the Investment Company Act, depending on the facts. And where the token is a security-based swap, it may not be offered or sold to persons who are not eligible contract participants unless a Securities Act registration statement is in effect, under section 5(e) of the Securities Act.

Registration, or an exemption

Once a property token is a security by either route, the Securities Act rule quoted earlier applies: the offer and sale are registered, or they fit an exemption. The exemptions most often named for smaller offerings sit in three sets of Commission rules, Regulation D, Regulation Crowdfunding and Regulation A. The figures below are those shown in the Electronic Code of Federal Regulations when it was read on 10 October 2026.

A simple comparison shows how the ceilings sort projects. As a worked example with assumed figures, take a sponsor who wants to raise US$12,000,000 from token holders for one building. That sum is above the US$5,000,000 that Regulation Crowdfunding allows in 12 months, below the US$20,000,000 of Regulation A Tier 1, and Rule 506 states no ceiling at all.

Regulation D: the private offering under Rule 506

Rule 506 treats an offering that meets its conditions as one that does not involve a public offering under section 4(a)(2) of the Securities Act. It has two versions.

Under Rule 506(b), the issuer may sell to accredited investors and to no more than 35 other purchasers in any 90-calendar-day period. Each of those other purchasers, alone or with a purchaser representative, must have enough knowledge and experience in financial and business matters to evaluate the merits and risks of the investment. Rule 502 forbids offering or selling by any form of general solicitation or general advertising, and it requires the issuer to give non-accredited purchasers a defined set of information a reasonable time before the sale.

Under Rule 506(c), general solicitation is permitted, on two conditions: every purchaser is an accredited investor, and the issuer takes reasonable steps to verify that status. The rule lists methods that are neither exclusive nor mandatory. They include reviewing Internal Revenue Service forms that report income for the two most recent years, and obtaining written confirmation from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney or a certified public accountant.

The accredited investor is defined in Rule 501. For a natural person, two of its tests are financial. The first is a net worth above US$1,000,000, alone or with a spouse or spousal equivalent, with the primary residence left out of the assets. The second is an income above US$200,000 in each of the two most recent years, or US$300,000 jointly, with a reasonable expectation of reaching the same level in the current year.

The exclusion of the home changes the sum for many households. As a worked example, assume a person owns a primary residence valued at US$900,000 with a US$500,000 mortgage, holds US$700,000 in other assets and owes US$50,000 in other debts. Rule 501 leaves the home out of the assets and does not count a mortgage up to the home's value as a liability. Net worth for the test is US$700,000 less US$50,000, which is US$650,000. That is below the US$1,000,000 threshold, whatever the equity in the house.

Three further conditions follow a Rule 506 sale. Securities bought under Regulation D cannot be resold without registration or an exemption, according to Rule 502(d), and the issuer must take reasonable care that buyers are not purchasing in order to redistribute. Rule 503 requires a Form D notice to be filed electronically no later than 15 calendar days after the first sale, with an amendment each year while the offering continues. And Rule 506(d) removes the exemption where the issuer or a covered person, a group that includes directors, executive officers and beneficial owners of 20% or more of the voting equity, has one of the listed disqualifying events on record.

Regulation Crowdfunding and Regulation A

Regulation Crowdfunding is the route open to the general public in small amounts. Rule 100 caps the issuer's sales under the exemption at US$5,000,000 in a 12-month period. The offering must run through one intermediary and exclusively on that intermediary's platform. Some issuers are shut out, among them companies not organised under the law of a United States state or territory, investment companies, and companies with no specific business plan.

Each investor who is not accredited has a personal limit that covers all crowdfunding purchases across all issuers in 12 months. If either annual income or net worth is below US$124,000, the limit is the greater of US$2,500 or 5% of the greater of the two figures. If both are at least US$124,000, the limit is 10% of the greater of the two, and never more than US$124,000. Income and net worth are calculated as they are for the accredited investor test.

Two worked examples, with assumed figures, show the arithmetic. An investor with an annual income of US$80,000 and a net worth of US$60,000 has a figure below US$124,000, so the first formula applies: 5% of US$80,000 is US$4,000, which is more than US$2,500, and the limit is US$4,000 for the year. An investor with an income of US$150,000 and a net worth of US$400,000 has both figures at or above US$124,000, so the second formula applies: 10% of US$400,000 is US$40,000.

Securities bought this way cannot be transferred for one year from issue, under Rule 501 of Regulation Crowdfunding, except to the issuer, to an accredited investor, as part of a registered offering, or to a family member, a trust or in circumstances such as death or divorce.

Regulation A works more like a small public offering. Rule 251 sets two tiers: up to US$20,000,000 in a 12-month period under Tier 1, and up to US$75,000,000 under Tier 2. Affiliates of the issuer who sell their own securities may account for no more than US$6,000,000 of a Tier 1 offering and US$22,500,000 of a Tier 2 offering. The issuer must be organised in the United States or Canada and have its principal place of business there, and it may not be a registered investment company.

The procedure is the main difference from Regulation D. No offer may be made until an offering statement is filed with the Commission, and no sale may be made until that statement has been qualified. In a Tier 2 offering of securities that will not be listed on a national securities exchange, a buyer who is not accredited may spend no more than 10% of the greater of annual income or net worth. For the first investor above, with an income of US$80,000 and a net worth of US$60,000, that is US$8,000.

What each party can take from the rules

For a buyer, two things can be looked for in the documents of an offering. One is what the token represents: an interest in an entity, a claim on a third party that holds something, or exposure with no holding at all. The other is the exemption relied on, because it sets who may buy, how much, and when a resale is possible.

For a sponsor, the release moves attention to communications. The promises that create an investment contract are those conveyed before or at the sale through the issuer's own channels, so the website, the whitepaper and the social media accounts are part of the legal picture. The choice between the two versions of Rule 506 is also a choice about marketing: public advertising belongs to Rule 506(c) and brings the duty to verify every buyer.

For a real estate agent or broker, the point is one of category. Selling a house is a real estate transaction. Introducing clients to fractions of a managed building may be a securities transaction under the analysis above. The documents read for this guide do not set out the licensing rules for intermediaries, which are a separate question.

A building is not a security. The promise to manage it for people who only want the return is what the law looks at.

What the sources leave open

Because the SEC documents opened do not address tokenised real estate by name, the application to property tokens described above follows from the definition of a digital security and from the investment contract rules, and each structure has to be assessed on its own facts.

The later sections of the March release were not read in full, and the Commission's later rulemaking on crypto assets in 2026 was not examined. Any no-action letters addressed to real estate token projects were not read either.

State law is a separate layer: state securities statutes and state real property law are not covered here. Nor are the rules on resale exemptions, on trading venues or on the tax treatment of token income.

Finally, the amounts quoted from the Commission's rules are those in the Electronic Code of Federal Regulations on 10 October 2026. That online edition describes itself as unofficial and continuously updated, and thresholds of this kind are adjusted from time to time.

Kooky, from Shaka

Kooky edits Agents Estate and builds Shaka, the payment router he made for real estate professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

About Kooky and Shaka →