On 29 March 2020, the Federal Treasurer announced that due to the impacts of COVID-19, all monetary screening thresholds for foreign investments in Australian land will be temporarily reduced to nil. This change was given effect through the Foreign Acquisitions and Takeovers Amendment (Threshold Test) Regulations 2020 (Cth) (“FATA Regulations”).
The effect of the FATA Regulations is that a greater number of foreign investments are required to be reviewed by the Foreign Investment Review Board (“FIRB”) to ensure they are not contrary to the national interest.
Although the FATA Regulations are intended to be temporary and in response to COVID-19, they will have a material and significant impact on many new leases.
New leases
Acquisitions by foreign persons of leasehold interests in Australian land require FIRB approval where the term of the lease (including any option period) is to be more than 5 years.
In general, foreign persons entering into a lease agreement (with a term of more than 5 years) after 10:30pm on 29 March 2020 will be subject to the reduced monetary screening threshold of $0 and will need to notify the FIRB. As a result, a large number of routine lease transactions will now require FIRB approval before commencing.
Notifiable actions
Option to renew
Where a lease is simply extended under an existing option to renew, this will most likely not, of itself, give rise to any new significant or notifiable action.
Rent Relief
Similarly, for existing leases that are renegotiated to give effect to rent relief measures required under state legislation in response to COVID-19, these changes will not, of themselves, be considered ‘material’ variations to the lease giving rise to a notifiable action.
Extension to the term
Where a foreign tenant renegotiates a lease to extend the term, this will amount to a material variation to the lease agreement if the resulting term exceeds 5 years. For example, if a tenant negotiates with a landlord for a 25 per cent reduction in rent over a 6-month period due to COVID-19, and as part of that deal the parties agree that the lease is to be extended by a further 3 years, this may give rise to a notifiable action if, as a result of the extension, the total term of the lease exceeds 5 years.
If the term of the lease is varied such that it amounts to the surrender of the initial lease and the grant of a new lease, a foreign investor will be regarded as having entered into a new agreement to acquire an interest in Australian land. In these circumstances, the tenant will need to seek FIRB approval where the term of the new lease exceeds 5 years.
Agreements for lease
Agreements for lease and leases are generally considered as two separate transactions by the FIRB. This means that a foreign tenant with an existing no-objection notification with respect to an agreement for lease may need to apply for a separate notification for the lease (if the term exceeds 5 years). This will not apply if the no-objection notification specifies both the agreement for lease and the lease, and both agreements are entered into during the specified period of the no-objection notification.
How can we help?
Arnold Bloch Leibler has always been a firm that puts its clients front and centre through good times and tough times, and we are committed to advising and supporting you as you navigate the unprecedented challenges triggered by COVID-19.
If it would be helpful to you to have a more detailed briefing on the information contained in this bulletin, please don’t hesitate to make contact with a member of our Property Team.
