COVID-19 | Update: Changes to foreign investment framework and implications for the commercial leasing sector

Further to our previous article regarding changes to the foreign investment framework and the implications for the commercial leasing sector, on 24 April 2020 the Foreign Investment Review Board (FIRB) released a guidance note which, among other things, provides clarification as to the effect of the temporary measures which result from the Foreign Acquisitions and Takeovers Amendment (Threshold Test) Regulations 2020.

In relation to the commercial leasing sector, the following items have been clarified by FIRB:

Extension of leases

The exercise of an option for a further term by a foreign person, which option is contained in a lease entered into before 29 March 2020, will not constitute a new significant/notifiable action unless there is some other material change to the Lease arising from the exercise of the option. This is because a tenant is taken to have acquired its interest at the time of acquiring the option (i.e. when the lease was entered into).

Variations to leases 

If a lease is varied by agreement to reduce, defer or delay rental payments under a lease which variation is temporary in nature (whether this is pursuant to the National Cabinet Mandatory Code of Conduct, the legislation, regulations, declarations and notices being made across Australia to give effect to the Code of Conduct or for any other reason relating to the COVID-19 pandemic), then the variation will not by itself constitute a material change to the lease and therefore will not give rise to a new significant/notifiable action.

Parties nonetheless need to proceed with caution as a material change to a lease (for example a change to an essential term such as extending the lease) may constitute a surrender of the initial lease and the grant of a new lease, and in these circumstances the approval of FIRB may be required.

Agreements for lease

FIRB has clarified the approval requirement for a lease (reasonably likely to exceed 5 years) which results from an agreement for lease (AFL).  FIRB is of the view that entry into an AFL is a separate action from entering into a lease pursuant to that AFL and this means that:

• a foreign person will require FIRB approval to enter into a lease pursuant to an AFL, which was entered into before 29 March 2020 and in respect of which FIRB approval was not then required or obtained; and
• foreign persons who have received an existing no-objection notification from FIRB with respect to an AFL may need to apply for a separate notification for a lease (reasonably likely to exceed 5 years), unless the existing no-objection notification specifies both the AFL and the lease and both agreements are entered into during the specified period of the no-objection notification.

If you require advice about how the changes may affect your proposed lease, our (property) team is here to help and we invite you to contact our office should you require any assistance.

For details of all our COVID-19 tips and updates, visit the Gadens COVID-19 Hub.

Authored by:

Sean Huggins, Special Counsel
John Darmanin, Senior Associate