ACCC merger notification regime - what does it mean for real estate funds?

The draft exemption captures acquisitions that have the effect of a person acquiring a legal or equitable interest in land for either of the following purposes:

• developing residential premises; or
• carrying on a business primarily engaged in buying, selling or leasing land, other than a purpose relating to operating a commercial business on the land.

The exemption applies to both vacant or developed land.

For most real estate funds targeting regular income through rental returns and/or capital growth upon realisation, the exemption as currently drafted may be sufficient to exempt most acquisitions. However, it is not clear from the exposure draft how the ‘primary’ purpose of the acquirer will be assessed, and what amounts to ‘operating a commercial business’. For example, if a stapled real estate investment trust acquires an asset on balance sheet (rather than through a separately managed structure) to derive rental income, but also provides property management services for the asset, whether this may compromise the availability of the exemption on the basis that they are operating a commercial business ‘on’ the land. In order for the exemption to have meaningful operation across the property funds industry, we would consider it necessary for a ‘commercial business on the land’ to mean only tenants or other occupiers of the land, not service providers in respect of the land itself. 

Property developers acquiring land for the purpose of carrying on their development business are also exempt from the notification requirements. 

The exemption does not apply to certain acquisitions by major supermarkets and, importantly, is an exemption from the mandatory and suspensory notification regime only – it is not an exemption from other competition law restrictions that may apply to acquisitions (such as where there is a substantial lessening of competition in a relevant market). 

The exemption in the exposure draft appears to be drafted in a way that may extend its operation to indirect interests in land, such as through the acquisition of units in a landholding trust. Namely:

• the exemption captures an acquisition if it ‘has the effect of’ acquiring the interest in land (rather than referring more narrowly to the acquisition being of the interest in land itself); and
• the section dealing with the exemption does not include a clarification that such transactions would be captured. In contrast, it is intended that these indirect acquisitions are notifiable by major supermarkets, with a note under the relevant provision expressly clarifying this. The absence of the same note for the land acquisition exemption suggests that indirect acquisitions are intended to benefit from the exemption. 

However, following the consultation period, this position could use clarification in the final determination. 

Given the nature of the notification process, if indirect transactions are captured, it may not be significant enough for many funds to be determinative of their transaction structure where there are other factors that would lend themselves to a unit rather than freehold title acquisition (such as tax or duty considerations). However, even where this is the case, the time and cost of a notification needs to be factored into transaction timing, including any related capital raising.