6 March, 2018
On 1 February the Treasurer announced a number of changes to the policy approach of the Foreign Investment Review Board (FIRB) in assessing transactions undertaken by foreign persons involving agricultural land in Australia. This briefing note summarises those changes and considers potential ramifications in implementing this new policy approach in practice. It also discusses the additional exceptions to the application of the new open and transparent sale requirement released by FIRB on 27 February 2018.
What you need to know
Generally, approval will only be granted to foreign persons in respect of acquisitions of interests in agricultural land where that land has been subject to an open and transparent sale process. This applies to leasehold interests, as well as acquisitions of freehold title.
All acquisitions of agricultural land for residential development will be subject to a condition that development occurs within five years.
No business exemption certificates will be granted in respect of investment in agribusiness.
What you need to do
If you have a pending application or sale process impacted by these policy changes, consider the impact of these developments. Further submissions to FIRB may be required.
If the interest being acquired is not a freehold interest, consider whether the land will continue to largely be used for agriculture and whether there are other benefits to the proposed acquisition that are in the national interest.
Look out for additional developments to FIRB approach and guidance.
Additional criteria and conditions impacting acquisitions of agricultural land
What is new
As of 1 February 2018, a number of FIRB Guidance Notes have been updated to introduce the following requirements:
- generally, approval will only be granted to foreign persons in respect of acquisitions of interests in agricultural land where that land has been subject to an open and transparent sale process; and
- all acquisitions of agricultural land for residential development will be subject to a condition that development occurs within five years.
According to the guidance notes, an open and transparent sale process means that a property needs to have been previously offered for sale publicly and marketed widely for a minimum of 30 days so that there was an equal opportunity for bids or offers to be made for the property and this is publicly known.
Who does it apply to?
All foreign persons who:
- wish to acquire an interest in agricultural land;
- apply for pre-approval for a program of land acquisitions in Australia under the exemption certificate regime; and
- currently hold exemption certificates to acquire interests in agricultural land,
- need to comply with these requirements.
Additionally, these new requirements will be imposed retrospectively to applications currently before FIRB which are yet to be determined.
Are there any carve outs?
Initially, there were a very limited number of exceptions to the open and transparent sale process requirement, where a foreign person:
- acquires a property via a private sale that was marketed/advertised in the above manner in the last six months but did not sell or where the sale fell through; or
- has a substantial Australian ownership share (ie 50% or more), on the basis that this constitutes "an opportunity for Australian bidders"; or
- is required to make the acquisition to comply with State or Commonwealth law (an example given is acquiring interests in agricultural land which constitute a mining buffer zone).
On 27 February, Guidance Note 17 (Agricultural Land Investments) was updated to include the following further exceptions, where a foreign person:
- is undertaking an internal reorganisation; or
- is acquiring an interest in an ASX listed company, as Australians are already afforded the opportunity to buy an interest in the entity by acquiring shares; or
- is increasing their interest in an agricultural land entity where they already hold more than 50% of the interest provided there is no change in the underlying agricultural land holdings of the entity; or
- is acquiring a leasehold interest with a duration between 5 and 10 years (with the duration taken to include any options to renew); or
- is acquiring a leasehold interest for a wind or solar farm development.
Additionally, FIRB has clarified that the decision-maker may consider extenuating circumstances where an applicant considers the open and transparent sale process requirement should not apply.
The onus is on the applicant to demonstrate, and if requested provide evidence, that the acquisition was subject to an open and transparent sale process.
No exemption certificates in respect of investment in critical infrastructure or agribusiness
The Treasurer also confirmed in a separate FIRB media release issued on the same day, that business exemption certificates will not be granted for investment in agribusiness. This is a tightening of existing guidance notes and indicative of a shift in approach to policy. FIRB guidance notes currently stipulate that business exemption certificates may not be appropriate for acquisitions of interests in the agribusiness sector but do not go so far to say that they would not be granted.
What does this mean?
The political tone and messaging of the media releases are focussed on Australians having an opportunity to buy agricultural land as that term is colloquially known and used.
Interestingly, the language used in the Guidance Notes to describe what the open and transparent sale process requirement means is centred around "property" sales and does not align with the legal terms under the Foreign Acquisitions and Takeovers Act 1975 (Cth). An acquisition of an interest in agricultural land is substantially broader than what would be commonly referred to as buying agricultural land and property.
It is still not clear how an open and transparent sales process requirement will, or could sensibly, apply to all acquisitions of interests in agricultural land which are not commonly seen as a property acquisition of freehold or long leasehold interests. However, we are pleased to see that the policy in this area continues to be developed; that Treasury is considering the practical application of the concept of an interest in agricultural land and open to developing sensible exceptions to the open and transparent sale requirement.
In particular, it is good news for renewables projects. Project proponents acquiring a leasehold interest to facilitate construction of a wind farm or solar farm, that acquisition will not be subject to the open and transparent sale process. The recently added exceptions go a long way to adding further clarity as to how this new requirement will operate and address some of the concerns we had previously raised. We remain hopeful that Treasury will continue to consider and develop the policy further, including additional practical exceptions and entertaining submissions for the non-application of this new requirement, where it remains aligned to protecting the national interest.
These new conditions are now in force and apply to pending applications. Foreign persons with applications currently before FIRB will need to consider their position and take one of the following courses of action, each of which may have detrimental commercial consequences:
- provide further information to FIRB regarding any open and transparent sales process that was conducted in relation to the acquisition, or otherwise make compelling submissions to FIRB as to why this condition should not be imposed; or
- suspend their application until an open and transparent sales process can be conducted; or
- withdraw their application, which will have cost implications as a further application fee will apply you decide to later reapply for approval. It is unclear if a fee waiver would be granted.
For further information, please contact:
Kylie Lane, Partner, Ashurst
kylie.lane@ashurst.com
