Effective from the 29 March 2020, new measures have been introduced by the Federal Government to reduce the monetary threshold for foreign investments requiring Foreign Investment Review Board (FIRB) approval to $0.
It is not well-known that the class of assets subject to FIRB approval include leases of commercial property.
What you need to know
To summarise, any foreign entity that is proposing to:
- enter into a new lease of commercial land (whether vacant or developed) or
- extend an existing lease term,
where the term of the lease is greater than five years will now need to apply for and obtain FIRB approval.
Commercial Leases and FIRB
Prior to the changes, entry into a lease of developed commercial land by a foreign entity required FIRB approval if the term of the lease was likely to exceed five years and the total rent payments over the term were $275 million or more, or $60 million in certain circumstances.
The acquisition of a leasehold interest in vacant commercial land or developed commercial land leased to a foreign government tenant was always subject to a zero dollar threshold and there has been no change to the approval process of such leases.
A foreign entity tenant must now apply to FIRB for approval before entering into a commercial lease where the term of the lease including any extension or renewal is likely to exceed five years, regardless of the amount of rent to be paid.
Given the likelihood of far more applications for approval, FIRB has extended the timeframe to review applications from 30 days to up to 6 months.
This means that foreign owned company tenants or foreign individuals seeking to enter into leases will need to factor in additional steps and extra time for entry into leases. This will impact on development applications, fit out works and whether these can move ahead on schedule.
What should landlords do?
Landlords should consider including conditions in leases and agreements for lease to provide for FIRB approval or a warranty from the tenant that it has been obtained.
If you require advice as to how these changes will affect a proposed agreement for lease or lease, Madgwicks Property team can assist.