FIRB has updated its guidance notes on the process for acquiring Australian agricultural land by foreign persons, including where foreign persons already hold a land exemption certificate.
Open and transparent sale process required
FIRB has stated that it will generally grant approval to foreign persons to acquire interests in agricultural land if the land has been subject to an 'open and transparent sale process'.
The meaning of 'open and transparent sale process' remains largely the same, but the requirement that the land/interest is marketed/advertised in channels that Australian bidders could reasonably access for a minimum of 30 days has now been tightened so that the marketing period must occur within the six months immediately prior to the agreement date.
FIRB has also provided further guidance on the general factors when determining whether a sale process was open and transparent including:
- the timetable and scale of the sale process;
- the number of interested parties;
- participation in the process by Australian parties; and
- whether there was an opportunity for Australian parties to bid for the land/entity.
The open and transparent sale process applies to both the acquisition of freehold interests (or leasehold interests with freehold characteristics) in agricultural land, where the land is to be used for a primary production business or residential development. It also applies where an investor has previously received an exemption certificate.
Leasehold interests with freehold characteristics could include leases where:
- there are no significant/market-based periodic payments (consideration is upfront with a nominal annual lease);
- the term of the lease is indefinite or the lease would be renewed automatically or at the election of the tenant at no extra charge;
- there is an option to acquire a freehold interest at the end of the lease; or
- the lessor is a State/Territory government (e.g. perpetual or pastoral leases).
When does the requirement to hold an open and transparent sales process not apply?
There are now two exceptions to the open and transparent sales process requirement. These are:
- Proposals where the target entity is already a foreign person, or the target land is already held by a foreign person, and there is no change in control. This includes internal reorganisations, acquisitions of increased interests in entities where the applicant already holds a 50 per cent interest and proposals to introduce new minority interests where the target is already foreign-controlled.
- Acquisitions that allow Australian investors to participate in a significant way.
Examples given by FIRB include where:
- an applicant is majority Australian controlled (through control, ownership and/or beneficial interest), or where Australians or Australian entities have the opportunity for significant participation in the business. Openness to significant Australian investment through ASX listing may be relevant to demonstrating Australian participation.
- there is significant ongoing participation by Australian entities in the operation of a primary production business on the land. This could include proposals involving a sale and long term leaseback arrangements to an Australian investor.
Extenuating circumstances
Additionally, FIRB has provided clarification of the extenuating circumstances or compassionate grounds a decision-maker may consider when deciding whether the open and transparent sale process requirement should not apply.
Examples of the extenuating circumstances include where the proposal is genuinely immaterial to broader ownership of the agricultural land, such as:
- land swaps;
- land boundary adjustments; or
- where Australian entities are a small and incidental part of a larger offshore transaction (and any land holding of those entities is also a small and incidental element of the transaction).
What does this mean?
These revised conditions are now in force and also apply to pending applications.
Although the updated advice is intended to provide certainty to applicants and vendors (and the general requirements and exceptions are broadly similar), the application of the changes in practice can be nuanced and complex.
Accordingly, foreign persons with pending applications should reconsider their proposal and take an appropriate course of action. Depending on the individual circumstances, this may include providing further information to FIRB to support the application or withdrawing their application if the conditions for acquisition are no longer satisfied.
Application for renewable energy developments
Unfortunately FIRB has not provided updated guidance for foreign persons intending to acquire agricultural land to develop a new renewable energy project.
It remains unclear to us whether FIRB policy is to encourage the development of new renewable energy projects on what could otherwise be categorised as agricultural land. For now, it appears that the approach is in some circumstances to apply the lowest possible threshold for notification with the highest possible fee. In addition, the test as to how land is categorised for these purposes is subject to subjective analysis and interpretation.
Greater clarity of FIRB's position in relation to undeveloped renewables projects would assist companies looking to invest in the renewables sector in Australia.
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