Earlier this year we reported on the major tightening of the foreign investment rules in response to the COVID-19 pandemic. The Foreign Investment Review Board (FIRB) has published further guidance on the temporary measures introduced. The guidance is particularly focused on how the new measures impact property transactions.
In particular, these measures will impact a large number of routine leasing transactions which would not ordinarily have required FIRB approval.
Who does this impact - what is a ‘foreign person’?
The new measures relate to ‘foreign persons’ as defined in section 4 of the Foreign Acquisitions and Takeovers Act 1975 (the Act). This includes the following:
- an individual that is not ordinarily a resident in Australia;
- a corporation in which a substantial interest is held by an individual not ordinarily resident in Australia, a foreign corporation or a foreign government;
- a corporation in which an aggregate substantial interest is held by two or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government;
- the trustee of a trust in which a substantial interest is held by an individual not ordinarily resident in Australia, a foreign corporation or a foreign government;
- the trustee of a trust in which an aggregate substantial interest is held by two or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government;
- a foreign government; or
- any other person as prescribed by the regulations.
Does this apply to an acquisition of land?
Yes. All transactions involving the acquisition of land by foreign persons, entered into after 10:30pm AEDT on 29 March 2020, now require FIRB approval. FIRB approval is required regardless of the value of the property and type of land acquired.
Does this apply to new leases?
Yes, the new measures extend to foreign persons acquiring a leasehold interest in Australian land where the term of the lease, including any option periods, is more than five years. In any such case, FIRB approval is required. This applies to all types of leasehold interests, regardless of the monetary value or land use, entered into by foreign persons after 10:30pm AEDT on 29 March 2020.
Does this apply to an agreement for lease?
Yes. The Act states that an option to acquire an interest in land, including a leasehold interest, is covered, even if the option is never exercised. This means that a foreign person entering into an agreement for lease, where the lease meets the 5 year requirement, must obtain FIRB approval.
Does this apply to a variation of lease?
FIRB approval may also be required when varying a lease, depending on what terms are being amended. FIRB approval is required where there is a material variation to the lease agreement.
Whether your lease variation falls within the requirement for FIRB approval will depend on the specific circumstances and changes being made to your lease.
FIRB has made it clear that re-negotiating a lease where the term is varied (instead of entering into a new lease) will be a material variation requiring FIRB approval. However, FIRB has clarified that where a temporary reduction, deferral or other delay in rental payments is agreed under an existing lease, particularly where the amendment is made due to the COVID-19 pandemic, this will not constitute a material variation and accordingly will not require FIRB approval.
What will this cost?
Traditionally, FIRB fees are quite substantial. As FIRB approval will be required for many smaller transactions as a result of the new requirements, fees have been lowered in certain circumstances. For applications regarding commercial land, where the consideration for the acquisition is $10 million or less, the FIRB application fee is $2,000.