FIRB update: Purchase of Australian Commercial Real Estate by ‘Foreign Persons’

Commercial real estate includes vacant and developed property which is not for residential purposes. A foreign person wishing to purchase commercial real estate in Australia needs to be aware that certain restrictions may apply.

Foreign Person

‘Foreign Person’ is defined under Section 5 of the Foreign Acquisitions and Takeover Act 1975 (Cth) to mean ‘a natural person not ordinarily resident in Australia’.  However, the definition also includes:

• a corporation in which one or more ‘foreign persons’ or a foreign corporation hold a controlling interest;

• the trustee of a trust estate in which a ‘foreign person’ or a foreign corporation holds a substantial interest;

• the trustee of a trust estate in which two or more ‘foreign persons’ or a foreign corporation holds an aggregate substantial interest.

A person is considered to hold a ‘substantial interest’ if that person controls 15% or more of voting power or holds a 15% or more interest in a corporation.  Two or more persons are taken to hold an ‘aggregate substantial interest’ if they together control 40% or more of the voting power or hold a 40% or more interest in a corporation.  Either a substantial interest or an aggregate substantial interest is taken to be a ‘controlling interest’.

Developed Commercial Real Estate

Developed commercial real estate includes offices, warehouses, factories, restaurants, shops, hotels, motels, hostels, guesthouses and any individual dwellings within those properties.  A foreign person is not required to seek approval from the Foreign Investment Review Board (FIRB) if the developed commercial property to be purchased is valued below the applicable monetary threshold set out in Australia's Foreign Investment Policy (Policy).

Under the Policy, the monetary threshold for foreign persons acquiring developed commercial properties as at 1 January 2011 is A$50 million. The threshold is A$5 million if the property is heritage listed.

Monetary threshold for United States investors acquiring developed commercial properties as at 1 January 2011 is A$1005 million.

Foreign persons are permitted to purchase developed commercial properties valued above the monetary threshold if approved by FIRB. FIRB will normally grant approval for the purchase unless the approval is deemed to be contrary to the national interest. 

Commercial Real Estate For Development

Foreign persons acquiring vacant properties for commercial development must obtain approval from FIRB regardless of the purchase value. FIRB will normally approve the development subject to the following conditions:

• continuous construction commencing within five years; and

• a minimum amount equivalent to 50% of the acquisition cost or current market value of the land (whichever is higher) being spent on development.

Exemptions

An Australian citizen or permanent resident living overseas is exempt from applying to FIRB for approval to purchase commercial real estate.

Regardless of the foreign person’s citizenship or residency, FIRB approval is not required if the person is acquiring property by will or by operation of law (such as a court order regarding the division of property in a divorce settlement).

No approval will be required for acquisition of property from the Commonwealth, State or Territory or a local government, or a statutory corporation formed for a public purpose.

A foreign person is not required to obtain approval for purchasing developed commercial real estate where the property is to be used immediately, in its present state, for industrial or non-residential purposes. The acquisition must be wholly incidental to purchaser’s proposed or existing business activities.

For assistance in making an application for FIRB approval to buy commercial real estate or further information generally please contact Maria Ho, Partner in the Corporate and Commercial team on 8210 1274 or mho@normans.com.au.

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Update: National Business Name Registration

As outlined in our previous Briefly, legislation has been introduced to establish a National Business Names Registration system.  This will replace the current State and Territory systems.

Originally envisaged to come into effect in April 2011, the Business Name Registration Bill 2011 is out for public comment until 24 April 2011 and is expected to be introduced in mid 2012.  The new national system will be administered by ASIC.

The national system will benefit businesses trading nationally, as they will no longer to have to register business names in every State and Territory they want to trade in.  While the details are yet to be specified in the Bill, it is proposed that business names which are currently registered under the State and Territory systems will be automatically rolled into the national system.

The transfer of all business name registrations to the national register will include some identical business names that have been registered (by different owners) in different States or Territories. It is also proposed that these identical business names will be distinguished on the register by a geographical marker, although the business name will apply nationally (and not include the geographical marker). Business owners will also be able to register and renew their business name registrations online.

For further information please contact Penny Chalke, Associate to the Corporate and Commercial Services Team on (08) 8210 1260 or pchalke@normans.com.au

Update: Personal Property Securities Reform

These extensive reforms to the registration and enforcement of securities taken over personal property (other than land) are explained in detail in our previous Briefly.

The new PPS regime was expected to commence in May 2011.  However, at the Council of Australian Governments (COAG) meeting in February 2011 the Commonwealth and States agreed to delay commencement until 1 October 2011.

The transitional arrangements for existing personal property securities will now run for two years until 30 September 2013.  However, businesses that hold securities that have not previously been registered, or which are not being automatically migrated onto the PPS Register, should consider registering their security interest during the transitional period.

The delay in the implementation of the PPS regime gives businesses a further opportunity to put in place the correct documentation and procedures to ensure they are ready for the new system.

For further information please contact Penny Chalke, Associate to the Corporate and Commercial Services Team on (08) 8210 1260 or pchalke@normans.com.au

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