From March 2015, a new Australian government regime for the acquisition of agricultural land and agribusiness by foreign investors has been in operation. The screening threshold for agricultural land was substantially reduced from that date from A$252m to A$15m, calculated on a cumulative basis.
This new regime is centred around the national concern of “selling the farm”, including the potential impact on food security and competition in Australia.
Unfortunately, the application of the new regime also has the consequence of catching most solar and wind renewable development projects in Australia due to the need of those projects to acquire rights to use small parcels of land which are themselves part of much larger rural holdings.
Agricultural land is defined broadly under the foreign investment regime (see further explanation below) and captures most of the land that would usually make up the development site required for solar or wind renewable projects. Accordingly, the developer should be aware that if one or both of the following circumstances apply, it will need to obtain prior approval from the Foreign Investment Review Board (FIRB) before entering into any long-term leases with the landowners:
- if the developer is a foreign government investor, then any acquisition of interests in Australian land irrespective of value will require prior approval. Foreign government investor is defined very broadly and includes any developer that has at least a 20% government interest from a single foreign country or at least a 40% government interest from multiple foreign countries. This includes indirect foreign government interests such as investments from government or municipal super funds, state-owned enterprises, and other semi-government entities at any level of the equity structure; or
- if the developer is a non-foreign government investor (i.e. a privately funded foreign investor), then the A$15m cumulative threshold for the acquisition of interests in agricultural land will apply. The cumulative threshold looks at all existing interests in Australian agricultural land held by the foreign investor. This means that if the foreign investor already holds interests in agricultural land in excess of A$15m, any new acquisition of interests in agricultural land (including long-term leases) will require prior approval from FIRB irrespective of value.
The most problematic aspect of the agricultural land regime is how the value of the lease arrangements (being both the options to lease and the long-term leases themselves) should be calculated in determining whether the A$15m threshold is reached.
Entry into leases will be deemed to be an acquisition of an interest in the underlying agricultural land if the lease term exceeds five years and gives the lessee a right to occupy the land. The consideration for the deemed acquisition is calculated as the aggregate amount payable over the entire lease term, including any extensions or renewals.
As most leases for renewable projects run for 10 to 25 years, with one or more extension options, this can add up very quickly to reach the A$15m threshold. For example, a single lease with an annual rent of A$10,000 can be deemed to have an acquisition value of up to A$750,000 under the foreign investment regime1. Based on this, most land programmes for mid-scale and all large-scale solar and wind development projects will exceed the A$15m threshold and therefore trigger the requirement for prior approval from FIRB2.
The application fee payable to FIRB depends on the acquisition value, and is generally A$10,000 per A$1m up to a maximum of A$100,000. Given the manner for calculating the acquisition value for long-term leases, most applications for mid-scale or large-scale solar and wind projects will attract the maximum A$100,000 fee under the foreign investment regime.
Finally, all acquisitions of interests in agricultural land by foreign persons regardless of whether they require approval from FIRB and regardless of value, must be notified to the Australian Taxation Office Register of Foreign Ownership of Agricultural Land within 30 days of entry into the lease.
Case study - Wind Farm Project
We recently acted for a foreign investor looking to acquire a large-scale greenfield wind farm project in NSW, with completion of the acquisition to occur on financial close.
The acquisition triggered the requirement for prior FIRB approval on two grounds:
- on financial close, the developer will enter into lease agreements with landowners over the project site. The project site had a footprint of approximately 1,500 hectares, and the total rent payable amounted to over A$100m for a 25 year lease with two extension options. This easily exceeded the A$15m FIRB threshold for agricultural land acquisitions; and
- on closing, the acquisition transaction, the development premium payable by the foreign acquirer is likely to exceed the A$55m FIRB threshold for an Australian land entity that holds interest in sensitive land being used for the generation of electricity.