FIRB has issued a press release announcing changes to the exemption provided under the regulations for small interests in Australian urban land trust estates1. New thresholds have been released, which remove the requirement to notify acquisitions of small interests in Australian urban land trust estates.
The existing exemption has been redundant for some time. We have been pressing successive governments for a review of the exemption and are pleased that this issue has been clarified. The current outdated criteria to ground the exemption are no longer able to be complied with. These include references to Corporate Affairs Commissions of a State/ Territory and the issue of an approved prospectus.
As an interim measure, before the regulation is formally put through Parliament, FIRB has announced that no action will be taken when a foreign person does not notify and seek prior approval in relation to an acquisition of a passive interest in a listed or unlisted Australian urban land trust estate, by acquiring an interest in units that result in a holding (alone or with associates) of less than:
- 10% in a listed trust, with a predominantly non-residential property portfolio of office, retail, industrial, or specialised properties, or a mix of these; or
- 5% in other public trusts with at least 100 unit holders and whose developed residential real estate assets that have been acquired from non-associates are less than 10% of the target trust's real estate assets.
Interests of less than the percentage holdings mentioned in a) and b) above may not be considered passive interests where there are special circumstances, such as the foreign person or their associates building a strategic stake in the trust, or being able to use their investment to influence or control the trust.
This change is important and welcome, in the context of listed real estate trusts, in particular, those that are listed offshore. The absence of the ability to rely on the exemption has meant that small acquisitions that should have benefitted from the operation of the exemption were technically required to be notified prior to this announcement. In the context of an Australian urban land trust estate listed offshore, this meant that potentially there were many breaches of the legislation occurring on a daily basis.
The clear intention of the regulation was to not require notification of small interests (less than 15%), which is consistent with the corporate thresholds under the legislation. However, the government sensitivity to investments in land, reflected in the legislation, requires the notification of a single unit in an Australian urban land rich trust estate.
Accordingly, the FIRB's announcement of the interim relief and the Treasurer pressing for regulatory change is of significant benefit to both investors and those seeking to list land rich trust estates both in Australia and offshore.
Whilst the thresholds that FIRB have announced are lower than the 15% threshold for acquisitions of corporate interests, in respect to both land rich and non-land rich companies, the relief is nevertheless positive.
The concept of a passive investment is not new and is consistent with the direct investment2 approach under the Foreign Investment Policy for foreign government investments.
Whilst the change is encouraging and we look forward to reviewing the new regulation in consultation with the government, we note that the announcement does bring additional thresholds to an already complex regime. Perhaps in reviewing the regulation FIRB may consider a more streamlined approach to what is a substantial interest and move towards having a single threshold to which the legislation applies. As 15% is the key trigger throughout the regime, there may be some utility in adopting this threshold in the regulation.
It is important to note that this clarification does not relieve foreign government investors of their obligations to notify the government and obtain prior approval for any acquisitions in Australian land, including interests in Australian urban land trust estates.
We would expect that the outcome of the Federal Election would not have an adverse impact on the sensible approach announced in the FIRB press release.