Whether owing to the lack of judicial interpretation on key areas of the Foreign Acquisitions and Takeovers Act 1975 (FATA) and the regulations under FATA1 (Regulations) or the policy driven intention of FATA, the vexed question of whether or not to formally lodge an application for FIRB approval arises more often than not.

As foreign investment increasingly targets Australian assets particularly in the real estate space, that question will become more common despite the recent relaxation of FIRB rules.

FIRB Enquiry

One way for foreign investors to obtain a level of comfort without the cost, uncertainty and delay of making a formal FIRB application is to make a 14 day FIRB enquiry, a process that we have recently used for both a foreign owned entity seeking an interest in land for industrial and commercial purposes and a foreign resident acquiring a substantial rural estate.

Interest in Land under an Agreement for Lease

The question arose for a foreign owned entity as to whether it might be necessary to obtain FIRB approval where, under an agreement for lease, it was to enter into a lease of land for industrial and commercial purposes for warehousing and distribution upon the completion of the construction of a warehouse. In this instance the interest being acquired was to be wholly incidental to the conduct of the foreign entity's existing and/or proposed business activities.

The documentation involved was fairly standard pre-commit documentation. However, because of:

  • the wide nature of the definition of "interest in Australian urban land" in FATA (which would include an agreement for lease);
  • the premises/site to be developed upon was arguably vacant and to be subdivided;
  • uncertainty in FATA and the Regulations as to the meaning of "vacant"; and
  • the zoning of the land was part of a broader parcel of land with a wide zoning/permissible use,
    there was uncertainty regarding whether an application needed to be made and/or FIRB approval was required.

Clause 3(f) of the Regulations

Clause 3(f) states as follows:

"The Act does not apply in relation to the acquisition of an interest in Australian urban land of the kind where...

  1. the land is being used, or is able to be used immediately and in its present state, for industrial or non-residential commercial purposes; and
  2. the acquisition is wholly incidental to the conduct of the existing or proposed business activities of the foreign person (other than business activities that include acquisitions of land or the development of, or investment in, land or the development or operation of any form of accommodation facility)."

Proposal in the 14 day FIRB enquiry

The proposal under the pre-commit documentation was that when the lease was formally entered into, the land would no longer be vacant and the zoning of the property would be clearly a non-residential use.

Confirmation was therefore sought of FIRB on the basis that:

  • as the "acquisition" of the interest in "Australian urban land" (ie an interest as lessee or licensee under the lease) under clause 12A of FATA did not become binding until practical completion of the building occurred, then under clause 26A, the time for notification is deemed to be when the leasehold interest is "acquired" and this was after the warehouse was constructed or substantially constructed.
  • Accordingly, at that time, the land would no longer be vacant land and under clause 3(f) of the Regulations, the acquisition would be exempt.

Ultimately this submission was accepted by FIRB in writing and the tenant obtained the necessary comfort in respect of whether or not a formal application for FIRB approval was required.

Factors to consider in the process

The FIRB enquiry system is a useful process to obtain a level of comfort for foreign investment in Australia and avoid the cost and possible delay of a formal application.

It is important, however, in any such enquiry to clearly state the relevant issue requiring clarification, the background facts and circumstances of the particular case and the confirmation the foreign person is seeking.

In addition it is important to note that:

  • the enquiry will only be actioned if materials available on the FIRB website (www.firb.gov.au) are insufficient; and
  • FIRB only endeavours to respond within 2 weeks, so any enquiry should be made promptly and preferably during an early stage of negotiations.

If you require any assistance or have further questions regarding the FIRB enquiry system, please contact us.

Footnote

1 Foreign Acquisitions and Takeover Regulations 1989

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.