Foreign investors looking to acquire an interest in Australian land face a regime of new screening thresholds and fees, tougher penalties and the establishment of an agricultural land register following recent wholesale amendments to the Foreign Acquisitions and Takeovers Act 1975 (Cth) (Act).
Failure by a foreign investor to comply with the strict obligations of the Act may result in:
Australian financiers should ensure as part of their due diligence processes that their foreign borrowers do not contravene their obligations under the Act in proposing to acquire Australian land. This is because the efficacy of any security interest granted by a foreign investor in Australia land may be undermined by:
This new regime of foreign investment laws came into force on 1 December 2015. Lavan Legal recommends that Australian financiers familiarise themselves with the new regime of foreign investment laws to ensure they efficiently and effectively deal with any proposed acquisition of Australian real property-related assets by foreign investors.
Foreign government investors must obtain approval from the Foreign Investment Review Board (FIRB) before acquiring any interest in Australian land, regardless of its type or value, unless the purchase is for diplomatic or consular requirements.
A private foreign investor must notify FIRB and obtain approval before taking a ‘significant and notifiable action’, meaning the acquisition of interests that meet certain value thresholds, depending on the type of land and interest acquired.
The applicant may voluntarily extend the decision period in writing prior to the completion of the 30-day period. There is no limit to the number of times the decision period can be extended in this way.
If FIRB does not make a decision or extend the decision period before the end of the decision period and the decision period is not voluntarily extended by the applicant, the Treasurer no longer has power to make any orders in relation to the proposed transaction under the Act. The result then is that the proposed acquisition may proceed.
What is a foreign person?
A ‘foreign person’ is:
the trustee of a trust estate in which two or more persons, each of whom is either a natural person not ordinarily resident in Australia or a foreign corporation, hold an aggregate substantial interest (of at least 40 per cent).
The schedule of value thresholds triggering the requirement for FIRB notification and review addresses three categories of foreign persons:
The thresholds vary between the categories and are calculated according to the amount paid for or the value of the interest, except in the case of agricultural land, where the screening threshold applies to the cumulative value of the applicant’s acquisitions.
Private investors from non-FTA countries must seek FIRB approval before acquiring:
The monetary thresholds for private investors from FTA countries are:
Subject to certain exemptions, all foreign investors must obtain FIRB approval before acquiring an interest in residential land, regardless of value.
Given the national significance of agricultural production, the Government takes a close interest in foreign acquisition of agricultural interests. Consistent with this focus, it has established a Register of Foreign Ownership maintained by the Australian Taxation Office (ATO) and lowered the screening threshold for FIRB review to $15 million, subject to the FTA agreements referred to above. The review threshold includes the total value of current and proposed interests in agricultural land held by the applicant and their associates.
Under the Register of Foreign Ownership of Agricultural Land Act 2015 (Cth), foreign persons were required to report all of their agricultural holdings to the ATO by 31 December 2015. Notwithstanding that, the ATO website specifies that interest must have been notified by 29 February 2016. Any new acquisitions of agricultural land must now be registered within 30 days of acquisition by a foreign person. This obligation applies regardless of whether the value of the land meets the threshold for FIRB notification or its purchase is covered by an exemption certificate.
Foreign persons, including foreign government investors, can apply for an exemption certificate to cover a program of acquisitions of interests in agricultural land.
FIRB will generally approve an acquisition of vacant commercial land subject to the applicant commencing construction of the proposed development on the land within five years of approval and not selling the land until construction is complete.
Foreign persons can apply for an exemption certificate to cover a program of acquisitions of interests in commercial land. However, exemption certificates do not cover the purchase of sensitive land for which the $55 million screen threshold applies.
The Australian Government’s approach to foreign investment in residential land is to promote an overall increase in Australia’s housing stock and the consequent boost to construction and economic growth.
Accordingly, applications to purchase:
Mixed used land
Where land meets more than one of the land type descriptions, foreign buyers may be subject to multiple notification obligations.
Where an acquisition involves multiple titles with different uses, notification requirements and approvals will be determined on a title by title basis.
There is a common perception that leases do not require FIRB approval. This is not always correct.
Section 12(1)(c) of the Act provides that an interest in Australian land includes an interest as lessee or licensee in a lease or licence giving rights to occupy Australian land where the term of the lease or licence (including any extension) is reasonably likely, at the time the interest is acquired, to exceed five years.
FIRB approval is not required for acquisition of residential land:
This is not an exhaustive list.
Australian or foreign developers may apply for a new dwelling certificate for a development comprising 50 or more dwellings, which has development approval from the relevant government authority and, if applicable, for which foreign investment approval was given for purchase of the land and any subsequent conditions met.
Foreign persons may purchase interests in dwellings up to a value of $3 million in a development subject to a new dwelling exemption certificate without having to make a separate application for foreign investment approval. However, the developer must pay a fee for each dwelling in that development purchased by a foreign person.
The recent reforms included introduction of application fees to fund the cost of administering foreign investment applications.
Fees currently start at:
Costs for applications for exemption certificates are as follows:
to acquire interests in mining or production tenements, $25,000 (or nil if the applicant pays a fee for an application for an exemption certificate to acquire interests in Australian land and the applications are made within 7 days of each other).
Creation of a change in property
The Act provides that a first ranking charge may be created in respect of an interest held by a foreign investor in Australian land in favour of the Commonwealth of Australia, if:
This first ranking charge gives the Commonwealth the power to sell the interest in land subject to the charge created by the Act. The proceeds of sale are paid in the following order of priority:
This is a very cursory summary of Australia's foreign investment laws. For a more thorough examination of Australia's foreign investment laws please click here.
Lavan Legal recommends that Australian financiers, in dealing with a proposed acquisition of Australian land by a foreign purchaser familiarise themselves with Australia's foreign investment laws so that they ensure that the foreign investor has not and will not contravene their obligations under the Act.
Any contravention of a civil penalty provision of the Act by a foreign purchaser may give rise to a first ranking charge over the land, which will subordinate the Australian financier’s security interest in the land. This adds some new commercial risk to Australian financiers dealing with foreign investors who propose to acquire an interest in Australian land.