The "open and transparent sale process" requirement for sale of agricultural land to a foreign investor, announced on 1 February 2018, has undergone some changes which clarify some aspects of its scope.
The updated Guidance Notes GN 17 (Agricultural land investments) and GN 21 (Exemption certificates for a program of acquisitions of interests in kinds of land) clarify some of the matters to be undertaken as part of the requirement, and expanded the noted exceptions to the requirement. No legislative change has been made in respect of these updates.
"Open and transparent sale process"requirement
Unless certain exceptions apply, approval of FIRB for the acquisition of an interest in agricultural land, shares in an agricultural land corporation, or units in an agricultural land trust, will only be granted if
- the land, shares or units has been widely marketed to potential Australian bidders for at least 30 days within the six months prior to the agreement date; and
- there was equal opportunity for bids or offers to be made for the land, shares or units while still available for sale.
This means that the requirement effectively precludes a seller of agricultural land, an agricultural land corporation or an agricultural land trust from entering into a confidential private treaty with a foreign buyer if a FIRB approval is required for the acquisition of the agricultural land to be used for a primary production business or residential development.
What agricultural land is covered
As a result of the update, the requirement now only applies to agricultural land that is intended to be used for a primary production business or residential development. Previously the requirement applied to a sale of any interest in any agricultural land. We note that the Foreign Acquisitions and Takeovers Act defines agricultural land as land in Australia that is used, or that could reasonably be used, for a primary production business.
Interests in agricultural land that are covered
The requirement now only applies to an acquisition of freehold interests or leasehold interests with freehold characteristics, which could include where:
- there are no significant/market-based periodic payments (the consideration is primarily upfront with a nominal annual lease payment);
- 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; and
- the lessor is a State or Territory Government (eg. perpetual or pastoral leases).
Previously the requirement applied to an acquisition of any kind of interest in agricultural land.
Requirement is eased in some circumstances
The 30 day domestic marketing process (within six months prior to the agreement date) may not need to be strictly followed if the applicant can demonstrate it has taken an alternative measure to ensure that the agricultural land has been open to allow Australian investors an equivalent level of participation.
Significant ongoing participation by Australian entities
The requirement no longer applies if an acquisition entails significant ongoing participation by Australian entities in the operation of a primary production business on the land, such as a proposal involving a sale and long-term leaseback arrangement to an Australian investor.
The following other exceptions under the previous Guidance Notes continue in place:
- 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, eg. internal reorganisation and acquisition of a minority interest in an agricultural land corporation which is already controlled by a foreign person; and
- where Australians are allowed to participate in a significant way, e.g. where an applicant is majority Australian controlled, or where Australians have the opportunity for significant participation in the business.
Also continuing are the following matters - an acquisition of an interest in agricultural land, shares in agricultural land corporation or units in agricultural land trust under certain prescribed circumstances is exempted from the application of provisions of the Act dealing with an interest in agricultural land (or agricultural land corporation or trust) and therefore a sale of such an interest is not subject to the "open and transparent sale process" requirement. Those circumstances include:
- where the acquisition is made by a non-foreign government investor from Chile, New Zealand or Unites States with a deal value under $1.134 billion;
- where the acquisition of agricultural land is made by a non-foreign government investor from Thailand and Singapore with a deal value under $50 million ‒ there are different tests when considering the acquisition of an agricultural land corporation or agricultural land trust by a foreign investor from these countries; and
- where the acquisition is made by an owner or operator of solar or wind power station and the interest is an interest in agricultural land for the sole purpose of acquiring or operating a wind or solar power station already located on the land (whether on or beneath the surface).A "wind or solar power station" means an accredited a wind power station or solar electricity generation system within the meaning of the Renewable Energy (Electricity) Act or any component of it.
Effect of the updates
The most recent updates to the Guidance Notes do not suggest any shift in the Government's policy behind the "open and transparent sale process" requirement. However, the amended guidelines do clarify some aspects of the policy.
The effect of the updates is to clarify what should have been outside the scope of the requirement when the requirement was first introduced.
It remains to be seen, however, whether the updates will have any impact on the sale of agricultural land by willing vendors, or whether these requirements help attract capital to this vital part of the Australian economy.