Treasury's recent follow up guidance explaining the significant changes to the Foreign Investment Review Board (FIRB) approval process in Australia under the new COVID-19 measures confirms the significant expansion of transactions now requiring FIRB approval. This means you must consider whether FIRB approval is required in relation to a transaction at the earliest opportunity.
Here, partner Mark Lyons highlights some key points arising from the guidance around processing time, fees, pre-existing agreements, exemption certificates, no-objection notifications, plus how the changes impact leasing transactions involving foreign persons.
For more details about the important changes announced by the Treasurer in March this year, please click here for our article.
As a general principle, the guidance confirms acquisitions of all interests in all Australian land by all foreign persons are now 'notifiable' and 'significant actions', regardless of the type or value of the land.
Administrative measures are being introduced to ensure the great majority of applications are processed much faster than the six-month extended FIRB review timeframe. Priority will be given to applications for investment that protects and supports Australian businesses and jobs. Cover letters submitted with applications should clearly highlight if the application is low risk and the positive impact the transaction is likely to have on job opportunities and the Australian economy generally.
To align non-foreign government investors with the concessional fee treatment of foreign government investors for non-vacant commercial land acquisitions from $10 million up to $55 million, fee waivers will be considered and processed on a per-application basis. This means non-foreign government investors will ultimately pay the same fee as foreign government investors for acquisitions within this range (ie $2,000 instead of $26,200). To ensure applications are submitted correctly, FIRB recommends the applicant initially pay the full fee (before any waivers are considered and applied) and then wait for a refund where the waiver is approved.
The changes do not apply to any agreement entered before 10.30pm AEDT 29 March 2020 (the cut-off date). If a party is simply exercising an option under an agreement entered before the cut-off date, it will not give rise to a new significant or notifiable action.
If an exemption certificate was granted to a foreign person prior to the cut-off date, the certificate remains valid, providing all conditions continue to be met.
No-objection notifications issued to a foreign person prior to the cut-off date still apply.
The guidance also highlights how the changes will impact leasing transactions involving foreign persons. Foreign persons acquiring leasehold interests in Australian land have always potentially required FIRB approval where the term of the lease was likely to be more than five years (including options). However, the requirement was rarely triggered for leases of existing developed commercial property (such as existing office space, industrial facilities or retail outlets) because the consideration paid under the lease (ie rent) rarely exceeded the monetary thresholds for notifiable and significant transactions. Now the monetary thresholds have been reduced to zero, all five-year-plus leases entered by foreign persons are likely to require FIRB approval. Where the rent over the likely term of the lease is less than $10 million, the application fee will be $2,000.
When considering whether FIRB approval is required for a lease, the 'look through' provisions in the legislation must also be considered. In very broad terms, this means even where the lessee is a company incorporated in Australia or a trust established in an Australian jurisdiction, the company or trust may be deemed to be a foreign person because an underlying interest in it (generally 20 percent or more) is held by foreign interests.
To avoid delay, additional expense and potential regulatory non-compliance, it is now more important than ever to consider at the earliest available opportunity whether FIRB approval is required in relation to a transaction. If FIRB approval is required, the right strategy must be developed to navigate the process in the most efficient way possible.
Our Real Estate lawyers understand the changes and can assist with your questions and explain how to develop the best strategy.