It is commonly known that acquisitions of Australian land by foreign persons require approval by the Treasurer (“FIRB approval”) if certain criteria are met. What is less known is that “interests in Australian land” extend to leases where the term of the lease (including any extension or renewal) is reasonably likely, at the time the lease is entered into, to exceed 5 years.
Until now, very few commercial leases would have required FIRB approval due to high monetary thresholds (typically between $60 million and $1.192 billion depending on the investor and the type of lease). That has now changed. As a result of the recent lowering of all thresholds to $0 due to the COVID-19 pandemic, all foreign persons entering into new leases with terms that are reasonably likely to exceed 5 years require FIRB approval.
The amendments only apply to leases entered into after 10:30 pm AEDT on 29 March 2020. Leases entered into before this time are not subject to the lower threshold.
Substantial amendments to leases may amount to a new lease for the purpose of requiring FIRB approval. New leases between existing landlords and tenants will require FIRB approval where the term of that lease is reasonably likely to exceed 5 years. However, the exercise of options to renew under existing leases will likely not require FIRB approval.
Minor amendments to leases to lower, defer or otherwise delay rental payments under an existing lease, particularly in response to COVID-19 and when those amendments are temporary in nature, would not typically require FIRB approval under the new measures.
It is important for both landlords and tenants to know if the tenant is a foreign person. A foreign person is described as the following:
- For an individual, a person that is not ordinarily resident in Australia.
- For a corporation, is a corporation where a foreign person holds a substantial interest (20%), or where two or more foreign persons hold an aggregate substantial interest (40%).
The rules on foreign ownership are quite complex and require tracing beneficial interests back through corporate shareholders.
If a tenant that is required to seek FIRB approval does not seek that approval, the Treasurer has the power to, amongst other things, rescind the lease. There are also penalties that may apply.
It is also important to consider the time frame for FIRB approval in the current climate. The decision making time-frame has been extended from 30 days to 6 months, allowing the Treasury to take up to 6 months in some circumstances to make a decision.
If you have any questions relating to the COVID-19 FIRB approval measures, please contact us and a member of our corporate team will be able to assist you.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.