Risky dealings with foreign buyers

28 November, 2016

Risky dealings with foreign buyers

There has been much recent publicity regarding the legal changes affecting foreign buyers purchasing property in Australia, particularly the minimum $5,000.00 application fee payable to the Federal Government. Less publicised has been the changes which mean that persons such as sellers, agents, lawyers and accountants now face extremely hefty penalties if they are found to have assisted a buyer with purchasing property in contravention of the rules set out in the Foreign Acquisitions and Takeovers Act 1975 (Cth) (“FATA”).

Whilst there has always been implications for those who assist a foreign buyer to unlawfully acquire property, the risk of prosecution has in the past been very low and the penalties minimal. However with the Federal Government’s recent crackdown on unlawful foreign buyers, the Federal Government has realised that penalising the foreign buyers alone is not an effective enough deterrent, particularly when that person is offshore. Therefore the Federal Government is now focusing its attention on prosecuting and penalising those who assist in an unlawful foreign purchase, such as lawyers and accountants, and those who are otherwise involved in such purchase, such as a real estate agent or potentially sellers.

Essentially, if a person such as a lawyer, accountant, seller or real estate agent is aware that a buyer is foreign or assists in an unlawful foreign purchase, they will be considered as liable as if they were the foreign buyer themselves.  This means that they could be subject to fines of up to $675,000.00 or three years imprisonment.  As there have not yet been any prosecutions, it is possible that the Federal Government may even look to prosecute persons who should have reasonably been aware that a buyer was foreign.

Examples of where someone assisting a foreign buyer could be found to be liable include:

1. Where a real estate agent is told by the buyer that they are a foreign person or that the buyer is buying the property on behalf of a foreign person;

2. Where a buyer is sourced by a real estate agent from a real estate website targeted at foreign buyers; or

3.  A lawyer or accountant assisting a foreign buyer with a property purchase.

If you do become aware that the buyer is a foreign person, it is important to immediately explain to the buyer that they need to comply with FATA.  If the buyer refuses to do so, you should stop assisting them and notify the Federal Government subject to any ethical obligations that parties like solicitors have to their clients.

While it can be difficult to work out whether a buyer is foreign or not, we have created a short checklist for you to use when dealing with buyers to minimise your risk of being subject to a large fine or imprisonment.

Please contact our property lawyers to discuss the rules regarding foreign investment in Australia further.