COVID-19: Details on the “Immediate and Temporary” FIRB Changes

Commercial Real Estate and Projects

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DATE PUBLISHED: April 17, 2020

Late last month, the Treasurer, Josh Frydenberg, announced immediate and temporary changes to Australia’s foreign investment review framework.

We previously summarised the changes in an earlier article click here, however, a very brief summary of the changes that took effect from 10.30pm on 29 March 2020 is as follows:

  • the monetary screening threshold for all foreign investments that are subject to the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) is be reduced to $0;
  • to deal with the additional administrative load created by reducing the monetary screening thresholds to $0, the timeframe to review applications has been increased from 30 days to 6 months.

At the time of writing, we are still waiting on a draft of the amending regulations. However the Foreign Investment Review Board (FIRB) has provided further clarification as to how the changes will be implemented.


SO WHAT IS IN FIRB’S UPDATE?

WHAT TRANSACTIONS ARE CAUGHT?

FIRB has clarified that the reduced monetary threshold of $0 will not apply to agreements entered into before 10.30pm AEDT 29 March 2020 (Cut-off Date) including in relation to acquisitions that have not yet occurred, regardless of whether there are unmet conditions or not.

This will provide comfort to foreign buyers that had entered into binding agreements before the Cut-off Date that were not subject to FIRB approval (due to the monetary threshold not being met) that they can proceed with completion, without requiring FIRB approval.

We have fielded queries from foreign buyers at term sheet stage prior to the Cut-off Date wondering if FIRB approval will be required. The answer requires a review of the term sheet to determine from a legal perspective whether the “term sheet” constitutes a binding agreement to buy and sell was made before the Cut-off Date.   

DO THE CHANGES AFFECT YOUR EXISTING EXEMPTION CERTIFICATE?

Exemption certificates granted prior the Cut-off Date remain valid, providing any conditions continue to be met.

This will provide great comfort to many foreign buyers and developers that procured their certificate prior to the Cut-off Date to allow them to continue with any proposed activity.


HOW WILL THE CHANGES WILL AFFECT RESIDENTIAL REAL ESTATE APPROVALS?

The changes are not expected to affect residential real estate approvals with a $0 threshold already applying to a foreign person acquiring an interest in residential land and a number of established conditions for such an acquisition being imposed by FIRB.

In great news to many of our residential property developer clients that rely on sales to foreign buyers, FIRB has stated it expects to continue processing residential real estate applications within 30 days.


WHAT IS STILL UNCERTAIN?

It remains uncertain how long these temporary changes will have effect, with the guidance being “these are temporary measures that will remain in place for the duration of the coronavirus crisis”.

Noting the intent of the changes is to stop foreign persons from taking advantage of falls in the value of Australian assets as a result of the impact of COVID-19, we expect that these changes will last until the Treasurer is satisfied the Australian economy has sufficiently recovered from the hit it is recently experiencing (which is really crystal ball kind of stuff to determine when we will recover).


HOW CAN WE HELP?

  • Advising on the application of the FATA, including whether FIRB approval is required in respect of a proposed action to be taken by a foreign person (despite the $0 threshold that now applies).
  • Drafting agreements that provide for FIRB conditionality or are designed not to trigger the application of the FATA.
  • Making an application to FIRB or the ATO in respect of a significant and notifiable action.
  • Assisting you with your existing or new application and making submissions to FIRB and the ATO that they accommodate commercial deadlines or that the action is in the nation’s interest as it will protect Australian businesses and jobs.   

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