YOU SHOULD BE CAUTIOUS when entering into negotiations with foreign purchasers for the sale of property, due to the restrictions imposed by the Foreign Investment Review Board (“FIRB”).
Vendors should ensure that the contract of sale protects them when approval is required by the FIRB. Because, if the purchaser fails to gain approval, the FIRB can reverse the transaction.
Who Needs FIRB Approval?
Enforcement of Australian investment is controlled by the Foreign Acquisitions and Takeover Act 1975 (Cth) (“FATA”).
The FIRB examines proposals by foreigners looking to invest in Australia and makes recommendations to the Treasurer.
The FIRB is a non-statutory body that does not make binding decisions; rather they act as an advisor to the Treasurer who grants the approval.
When it comes to commercial property, whether approval is required or not depends on whether the property is:
- Developed commercial real estate; or
- Land for commercial development.
Developed Commercial Real Estate
Offices, factories, warehouses, hotels, restaurants and retail property are generally classified as developed commercial real estate.
Developed commercial property does not include rural land, but may include rural property not falling within the definition of rural land. Generally speaking, rural land is land used wholly and exclusively for carrying on a substantial business of primary production.
Foreign investors of developed commercial real estate are only required to obtain approval if the property or premises is valued at $54 million or more. However, vendors of heritage listed commercial real estate should be aware that property valued at $5 million or more will require FIRB approval.
Exceptions are available for New Zealand and American investors, who are only required to apply for approval where the value of the property is above $1,078 million.
Vacant Land For Commercial Development
Foreign investment of vacant land for commercial development requires FIRB approval, regardless of the value of the land. There are no exceptions.
Get It In Writing
A wise vendor will ascertain whether a purchaser is a foreign investor before entering into negotiations — to ensure that they are not required to obtain FIRB approval before acquiring the property.
However, as this information is not always disclosed at the time of entering into negotiations, if you believe that FIRB approval is required (for example, for the sale of land for commercial development) you can request that the purchaser lodge an application for approval with the FIRB prior to signing the contract of sale.
The FIRB has 30 days from the receipt of the application to provide a response. However, they can extend this by up to 90 days. Alternatively, the sale contract can be conditional on the purchaser obtaining the approval.
If the contract will not be conditional on the purchaser obtaining FIRB approval — the contract of sale should include a warranty that the purchaser does not require FIRB approval.
Bottom Line: You should be aware of the restrictions FIRB place on Foreign Purchasers and protect yourself in writing. If you fail to do so, you expose yourself to unnecessary risk.
Disclaimer: If you think a similar situation may apply to you, then you should contact us for detailed legal advice relating to the particular facts and circumstances of your property or lease agreement. This article is not intended to provide such detailed and specific advice and you should not act on the basis of any matter contained in this article without first obtaining more comprehensive professional advice.
Speak Your Mind