It is not uncommon where a foreign relative lends to a borrower for the purposes of buying a second hand residential property, or, where a foreign entity lends to a borrower where the borrower may have some residential properties to offer as securities.

If you are a foreign person or foreign entity in these situations and you are not in the business of lending money, you will most likely need to seek approval from the Foreign Investment Review Board (FIRB).

When to apply for FIRB approval?

When a foreign person or foreign entity acquires an interest in Australian assets, entities or land, the general rule is that it must be notified to FIRB. However, some exceptions may apply.

What is an interest in land?

The definition of an interest in land is extremely wide. It includes, among other things:

• any legal or equitable interest in land

• leases (or licence) with a term (including options) that is reasonable likely to exceed 5 years

• interests in Australian land corporations or Australian land trusts (i.e. companies or trusts where the value of interests in Australian land exceeds 50% of its total assets)

• options over Australian land or agreement to acquire such interest

The “interest” is “acquired” when the relevant agreement becomes unconditional and binding.

Therefore, when a loan agreement is signed between the foreign lender and the borrower, where the security involves a residential second hand property, the foreign lender would be regarded as having acquired an equitable interest in land. Similarly, when a mortgage is registered on the borrower’s title of a residential second hand property by a foreign lender, the foreign lender would be regarded as having acquired a legal interest in land. In other words, a foreign lender would need to obtain FIRB approval before signing a loan agreement or registering a mortgage, where they are going to acquire an interest in Australian land.

Does any exemption apply to a foreign lender?

You may be wondering, if this is the case, why can foreign banks lend money without getting any FIRB approvals?

The answer is, certain foreign lenders are exempted from obtaining FIRB approvals.

Generally, the following classes of foreign lenders are exempted from obtaining FIRB approvals:

• the foreign lender is an authorised deposit-taking institution (or a subsidiary of such institution), or

• the foreign lender is not an authorised deposit-taking institution, but is licensed as a financial institution that has at least 100 members, at least 100 security holders or listed for quotation on an official list of a stock exchange.

If you would like us to apply for FIRB approval or intend to lend but are concerned that you are foreign, please feel free to contact our office.

Source:

Section 27(2), Foreign Acquisitions and Takeovers Regulation 2015 (Cth)

Guidance 2 – FIRB

*Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice before taking any course of action*.