In the hope of protecting the national economic interest, the Government following the Treasurer’s announcement on Sunday, 29 March 2020 introduced new Foreign Investment Review Board (FIRB) temporary measures to foreign investment transactions that are subject to the Foreign Acquisitions and Takeovers Act 1975 (Cth)1 (the Act).
On Friday, 17 April 2020 the Foreign Acquisitions and Takeovers Amendment (Threshold Test) Regulations 2020 (the Regulation) was introduced to be effective from 10.30pm on Sunday, 29 March 2020.2 The Regulation amended the monetary value thresholds provision under the Act, so that all proposed foreign investments into Australia will require approval regardless of its value or the nature of the foreign investor.3 This means on a practical scale a greater number of investments by foreign investors in Australia will need to be notified to the Treasurer for review. This will permit the Treasurer to impose conditions or reject applications where necessary to ensure the national interest is protected during COVID-19.4
As a result of these temporary measures, FIRB has also extended the timeframes for reviewing applications from 30 days to up to 6 months.5 In doing so, the Government will prioritise urgent applications for investments that protect and support Australian businesses and jobs, provided that this is highlighted in the application.
The intention of these temporary measures is to protect the national economy and Australian businesses.6 The temporary restrictions will limit foreign investments to those that can be beneficial and of assistance to the broader community in Australia (i.e. creating jobs for Australians), which in turn would assist the recovery and rebuilding of the national economy.7 For this reason, it is necessary for FIRB to assess foreign investment applications on a case by case basis.
Can a transaction be exempt for any other reasons?
Although monetary thresholds are reduced to $0, the exemptions contained in the Act and other regulations will continue to apply.8 Leases/ licences/ subleases (including renewals) or agreements for lease with a term less than 5 years are exempt from the FIRB application process. Also, these temporary changes will only impact corporate transactions involving an acquisition of a “substantial interest” (meaning acquisitions in Australian companies of less than 20% is generally exempt from the Act – but noting lower percentage thresholds may apply to some sectors and foreign government investors).9 Therefore, those foreign investors who previously relied on monetary thresholds should consider structuring options to rely on these exemption provisions under the Act.
By way of example, common transactions a foreign investor now requires FIRB approval under the Act includes:
- entering into commercial leases that are reasonably likely to be more than 5 years (including any renewals), agreements for leases or acquisitions of developed commercial land by foreign owned entities;
- acquiring (including an option or contract to acquire) an interest of 20% or more of the shares in any Australian company; and
- acquiring (including an option or contract to acquire) any interest in land (includes vacant commercial land) in Australia.
Can a lease commence conditionally after lodging a FIRB application but prior to approval?
For any new lease/ licence/ sublease (including renewals) or agreement for lease over all commercial land being entered into from 10.30pm on Sunday, 29 March 2020 (which is reasonably expected to have a term greater than 5 years)10, will be required to have a lease commencing date after the Tenant’s FIRB application is approved. The applicants can request the application to be reviewed on urgent basis. However, the Government will only prioritise urgent applications for investments that directly protect and support Australian businesses and jobs.11 Accordingly, the applicants will need to demonstrate how their transaction will meet the Government’s requirements.
The Landlord and Tenant may enter into new leases prior to FIRB approval. But will need to include a provision noting it is subject to FIRB approval and the commencing date of the lease must be a date after procuring FIRB approval.
How does this affect commercial leases?
If you are a foreign investor and considering entering into a lease/licence or agreement for lease for a term reasonably exceeding 5 years, you will need to consider time and cost of the FIRB application as the compliance burden falls on the Tenant. Alternatively, to obtain FIRB approval on a priority basis, it will be beneficial to demonstrate how your business will protect and support Australian businesses and jobs.
It may be prudent that at the time of issuing leases/ licences and agreements for lease, Landlords consider providing a provision noting that FIRB approval is either not required for the transaction or that it has been obtained.
If a Tenant who is considered a foreign person under the Act does not notify FIRB of the transaction, then they could potentially be liable for a civil penalty and or committing an offence under the Act.
Ongoing transactions – do new measures apply?
Under paragraph 74(1) of the Regulation, transactions that have been entered into prior to 10:30pm on Sunday, 29 March 2020 but not yet commenced are excluded from obtaining FIRB approval, this includes leases and agreements for lease with lease terms yet to commence.12
Is there a sunset date?
However, the Government has indicated that the Regulation is a temporary measure to remain effective during the COVID-19 crisis13, which at this stage is expected to be a period of at least six months. On that basis, the Regulation is anticipated to remain applicable at least until end of September 2020.
Prior to the Treasurer’s announcement, FIRB fees were based on the value of the transaction.14 Application fees are still payable and we can provide information on such fees if required. Information is also readily available through FIRB.
Should you require further information on how temporary measures to FIRB will impact you as a Landlord or Tenant or in capital transactions as a result of COVID-19, or require general advice on FIRB applications, please do not hesitate to contact us.