Thinking | 27 April 2020

COVID-19: FIRB clearance mandatory for foreign persons entering into commercial leases

By Conrad Smith

As it seeks to protect distressed Australian assets from the economic fallout of COVID-19, the Federal Government has introduced temporary changes that make it mandatory for foreign persons entering into a commercial lease of more than five years to receive Foreign Investment Review Board clearance.

When it comes to commercial leases, most of the attention in this COVID-19 era has focused on the moratorium on evictions for tenants in financial distress and the Code of Conduct for commercial tenancies (see our recent article The Code of Conduct for commercial tenancies for more detail).

What has received less attention, but is no less significant for landlords and those tenants that come within the definition of a ‘foreign person’[1] for Foreign Investment Review Board (FIRB) purposes, has been the COVID-19 related amendment to the Foreign Acquisitions and Takeovers Regulation 2015 (Cth) which has made FIRB clearance mandatory for foreign persons entering into a lease with a term reasonably likely to exceed five years.

This is a temporary change intended to remain in place for the duration of the COVID-19 crisis, and comes as the Federal Government seeks to protect distressed Australian assets from the economic fallout of the coronavirus pandemic.

So what has changed?

Prior to 10:30pm on 29 March 2020, a foreign person was only required to notify FIRB and receive a ‘no objection’ statement before executing a lease over Australian developed commercial land (or prior to the lease becoming binding if the lease included a FIRB condition precedent) if:

  • the lease term (including any options) was reasonably likely to exceed five years; and
  • the total monetary value of the costs of the lease was $275 million (or $60 million if the leased land was classed as ‘sensitive’).

The amendment to the Foreign Acquisitions and Takeovers Regulation 2015 (Cth) has reduced the monetary threshold to $0, thereby making all leases over developed commercial land to foreign persons subject to FIRB clearance. Leases of vacant land and residential land were already under a $0 notification threshold.

What is now required?

A foreign person who proposes to acquire a leasehold interest with a term of five years or more must now notify FIRB and receive a ‘no objection’ statement prior to entering into the lease (or prior to the lease becoming binding if it is conditional on FIRB clearance) regardless of the type of land or whether the land is vacant or developed.

Following lodgement of the FIRB notification, the foreign person must pay a notification fee based on the consideration payable under the lease:

Consideration of $10m or less Consideration $10m to $1,000m Consideration above $1,000m
$2,000 $26,200 $105,200

 

The Treasurer can approve the action by issuing a ‘no objection’ statement, prohibit the action or approve the action but impose conditions.

To accommodate the increased scrutiny of acquisitions by foreign persons, and the inevitable growth in the FIRB’s workload, FIRB is looking to extend timeframes for the review of applications from 30 days to up to six months. In doing so, the Government will prioritise urgent applications for investments that protect and support Australian businesses and Australian jobs. However, the risk of significant delays in obtaining FIRB clearance for a commercial lease needs to be carefully considered and appropriate safeguards put in place during lease negotiations.

If a foreign person does not notify the FIRB of its acquisition of a leasehold interest, they could be liable for a civil penalty or be found to have committed an offence under the Foreign Acquisitions and Takeovers Act 1975 (Cth).

[1] Foreign governments and their related entities (which include state-owned enterprises), foreign-controlled corporations and trusts, and individuals not ordinarily resident in Australia.

Contact

Conrad Smith

Conrad has a broad range of commercial experience, particularly in the areas of mergers and acquisitions, restructures and business...

You might be also interested in...

Property & Projects | 29 Apr 2020

NSW enacts COVID-19 leasing regulations for commercial tenancies

The National Cabinet’s mandatory Code of Conduct for commercial tenancies now has legal force in NSW. It came into effect by the enactment of the Retail and Other Commercial Leases (COVID-19) Regulation 2020. Partners Maurice Doria and Kitty Vo provide a rundown of what the Regulation means and what lessors and lessees need to do about it.

Corporate Governance | 1 May 2020

COVID-19: ASX regulatory relief for listed companies

In response to the COVID-19 pandemic and its potential impacts on the financial position of listed companies, ASX has released a Compliance Update announcing a number of relief measures, and clarifying various continuous disclosure and other obligations during this unprecedented period. Find out all you need to know here.