On 1 January 2021 major reforms to Australia’s foreign investment review framework (FIRB) took effect. As a result:
- the applicable monetary screening thresholds (which had been temporarily reduced to $0 in response to the COVID-19 pandemic) have been reinstated (and in some instances increased);
- a new subset of notifiable actions – ‘notifiable national security actions’ – was introduced;
- the Treasurer’s review power has been extended to include the “call-in” and “last resort” powers; and
- greater penalties now apply for non-compliance with the FIRB regime.
The reforms represent the some of the most significant changes to Australia’s foreign investment laws since 1975 and were implemented by:
- the Foreign Investment Reform (Protecting Australia’s National Security) Act 2020 – which amended the Foreign Acquisitions and Takeovers Act 1975 (Cth); and
- the Foreign Investment Reform (Protecting Australia’s National Security) Regulations 2020 (Cth) – which amended the Foreign Acquisitions and Takeovers Regulation 2015 (Cth).
The Government has released a number of helpful guidance notes which provide a detailed overview of the new regime. The guidance notes can be accessed here: https://firb.gov.au/guidance-notes.
This article provides a brief summary of the new regime and the impacts it will have on foreign commercial property investors and owners.
While the changes to the FIRB regime are vast, this article summarises the key changes that we consider will impact foreign commercial property investors and owners. The key changes to note are:
1. Monetary thresholds reinstated
On and from 1 January 2021, the $0 thresholds introduced on 29 March 2020 in response to the COVID-19 pandemic have been reversed and the pre-29 March 2020 thresholds reinstated (and in some instances increased).
As the thresholds currently stand, foreign persons acquiring an interest in commercial Australian land (including leases where the term of the lease including any extension or renewal exceeds 5 years) after 1 January 2021 will require FIRB approval where the value of that investment exceeds the following monetary thresholds:
- for developed commercial land that is not sensitive land, $281 million (or $1,216 million for certain free trade agreement partners);
- for developed commercial land that is sensitive land, $61 million; and
- for vacant commercial land or notifiable national security actions (referred to in point 3 below), $0 for all investors.
Note that “foreign government investors” require approval for all acquisitions of commercial land, regardless of its value or whether the land is sensitive land or vacant. See point 5 below in relation to the changes to the definition of “foreign government investors”.
Note also that “sensitive land” includes land leased to certain government entities, land fitted out for certain uses such as the storage of bulk data or military goods manufacture, land on which a mine operates, land on which services critical to authorised deposit taking institutions is situated and land on which certain public infrastructure is located. Some types of commercial land will likely satisfy the definitions of both sensitive developed commercial land and national security land.
Impact on Leasing Transactions
These changes unwind the burdensome impacts the $0 thresholds had on leasing to foreign persons between 29 March 2020 and 31 December 2020. As a result of the reforms, FIRB approval for a lease of developed commercial land not considered sensitive land or national security land will only be required where:
- the tenant is a “foreign person” for the purposes of section 4 of the Foreign Acquisitions and Takeovers Act 1975 (Cth);
- the term of the lease (including any extension or renewal) exceeds 5 years; and
- the value of the lease across its term exceeds $281 million (or $1,216 million for certain free trade agreement partners).
Note, however, that as the $0 monetary screening threshold applies to vacant commercial land, FIRB approval may still be required for interests acquired under certain agreements for lease.
2. Treasurer’s power to extend decision-making period
Under the old regime, the Treasurer’s power to unilaterally extend its decision making period beyond the usual 30 days (plus an additional 10 days for notification of the decision) was limited to the making of a public interim order.
In contrast, under the new regime the decision making period may now be extended by one of 3 ways:
- the Treasurer may, unilaterally, extend his or her decision making period by up to 90 days by giving written notice to the applicant (and without registering a public interim order). The notice provided must include the Treasurer’s reasons for the extension and the decision making period may be extended in this way more than once provided the total number of days by which the decision period is extended does not exceed 90 days;
- the Treasurer may use a public interim order to extend the decision making period (though we expect that this option will become less common as it is more administratively burdensome than the above option); and
- an applicant may voluntarily extend the decision making period by requesting an extension in writing.
3. Expansion of notifiable actions to include “notifiable national security actions”
The reforms to the FIRB regime introduced another category of notifiable actions requiring FIRB approval. This new category is called “notifiable national security actions”.
Insofar as they relate to interests in land, a “notifiable national security action” by a foreign person is the acquisition of an interest in “national security land”.
The reforms amend the Foreign Acquisitions and Takeovers Regulation 2015 (Cth) to include a definition of “national security land” with such land being categorised as defence premises or land in which the Commonwealth has an interest through an agency in the national intelligence community.
Accordingly, if a foreign person proposes to acquire an interest in defence premises or premises used by the Commonwealth for national intelligence, FIRB approval would be required prior to acquisition of the relevant interest irrespective of the value of the land (that is, a $0 monetary screening threshold would apply). When notified, a notifiable national security action will be subject to the narrower national security test to determine whether acquisition of the interest would be contrary to Australian national security.
4. Increase in the Treasurer’s powers – “Last resort” and “Call-in” powers
Last Resort Power
The reforms have broadened the Treasurer’s review powers. Under the old regime once the Treasurer granted FIRB approval for a particular action, the Treasurer could not make any divestment orders in respect of that action (provided, of course, the conditions of the relevant approval had been complied with) nor could the Treasurer unilaterally impose new or further conditions after the granting of approval.
However, under the new regime, the Treasurer has been given a “last resort power” where there are national security concerns which entitles the Treasurer to make a divestment order to unwind an action taken, or to unilaterally impose new conditions/vary existing conditions of an approval, after FIRB approval has been granted for a particular action. This power is exercisable in respect of:
- any no objection notice given on or after 1 January 2021 (but excludes significant actions notified to the Treasurer, or taken, before 1 January 2021); and
- any action taken on or after 1 January 2021 in reliance on an exemption certificate, irrespective of when the exemption certificate was given.
Note, however, that the last resort power is not unfettered – various requirements must be satisfied before this power can be exercised by the Treasurer in respect of an action. The factors and conditions required are set out in detail in Foreign Investment Review Board Guidance Note 8.
Further, the Treasurer’s powers have been expanded to include the “call-in power” which entitles the Treasurer to review any action:
- taken or proposed to be taken on or after 1 January 2021;
- which was not previously notified to FIRB;
- is a significant action or a reviewable national security action; and
- may pose a national security concern.
Following a call-in review, the Treasurer can make orders (such as prohibition or divestment orders) if the Treasurer considers that the action would be, or that the result of it is, contrary to national security. The Treasurer may use the “call-in power” at any time within 10 years after the action occurs.
For investments called-in, the Treasurer may issue a no objection notification (including with conditions), or prohibit the action or require divestment.
Investors should note that the Treasurer cannot call-in an action that has been notified to the Treasurer or for which a no objection notification or exemption certificate exists. A foreign person can therefore choose to extinguish the Treasurer’s ability to use the ‘call-in’ power by voluntarily notifying a reviewable national security action. Note, however, that voluntary notification will not extinguish the Treasurer’s “last resort power”.
5. Change to the definition of “foreign government investors”
Under both the old regime and the new regime foreign government investors (including foreign governments, foreign state-owned enterprises, foreign sovereign wealth funds and foreign public pension funds etc) require approval for all acquisitions of interests in commercial Australian land, regardless of its value and whether the land is sensitive land or vacant land.
However, the new regime has amended the definition of “foreign government investor” and the change is likely to benefit passive investment funds/schemes. Under the old regime, a party proposing to acquire an interest in Australian land would require FIRB approval where foreign government investors from one or more foreign countries held a collective 40% (or greater) interest in the corporation, unit trust or limited partnership.
From 1 January 2021, a foreign corporation, foreign trustee of a unit trust or foreign general partner of an unincorporated limited partnership will no longer be considered a “foreign government investor” under the 40% test if they operate a passive investment fund where individual investors in the fund are not able to influence any individual investment decision or manage any individual investments.
6. Increased penalties for non-compliance
The reforms to the FIRB regime have significantly broadened and increased the penalties for foreign persons failing to comply with the FIRB regime. Failure to give notice of a notifiable action or a notifiable national security action, or for taking an action notified to FIRB before receiving the necessary approval, or for failing to comply with conditions of an approval or an order made by the Treasurer may now potentially give rise to significant criminal and/or civil penalties.