- The UK National Security and Investment (NSI) Act received Royal Assent on 29 April 2021. Once fully implemented (expected by the end of 2021) the NSI regime will overhaul the review of transactions on national security grounds in the UK, including real estate transactions. It represents an important new execution risk factor, with a similar risk profile to merger control rules.
- Whilst the majority of real estate transactions are unlikely to give rise to national security concerns, it is important to consider the potential application of the NSI regime and the significant implications for the deal timetable (even if the transaction is ultimately likely to be cleared unconditionally) and other consequences examined below.
- Certain transactions will be subject to mandatory notification requirements, with a prohibition on completion prior to clearance. In a real estate context, this may include the acquisition of a shareholding or voting rights in a company that owns land, in certain circumstances (detailed below).
- A wider range of transactions may be called in for review by the Government – either pre- or post-completion – if there is a reasonable suspicion that national security concerns may arise. In the real estate context, this may include the purchase of land which is, or is proximate to, a sensitive site (as an asset acquisition), as well as the acquisition of a shareholding or voting rights in a company that owns land, which does not fall within the scope of the mandatory notification obligation but which nonetheless gives rise to concerns.
- Where a risk of call-in is identified, it may be advisable to voluntarily notify the transaction in the interests of certainty. However, there will be no prohibition on completion prior to clearance (subject to the terms of any interim order imposed by the Secretary of State if he/she decides that an in-depth investigation is required), and no sanctions for non-notification.
- If the transaction is reviewed under the NSI regime and national security concerns are identified, the Government will have the power to impose conditions on the transaction (in the real estate context, this could include, for example, controlling access to certain operational sites or works). As a last resort, the Government could prohibit/unwind the transaction.
- The new regime will apply equally to both UK and non-UK investors (although the Government has acknowledged that UK investors will be inherently less likely to give rise to national security concerns in practice).
- It may also capture qualifying transactions involving non-UK companies or assets: for the purposes of the call-in power, it is sufficient that the target entity supplies goods or services to persons in the UK, or that the target assets are used in connection with activities carried on in the UK or the supply of goods or services to persons in the UK.
- Unusually, the Government’s power to call-in transactions for review under the NSI regime may be exercised retroactively at the commencement date (or potentially up to five years thereafter) in relation to any qualifying transaction completed between 12 November 2020 and the commencement date which gives rise to national security concerns.
Our detailed general overview of what the NSI Act means for investors, and how the notification and review process will work, is available here. We were very closely involved in the passage of the NSI Act through Parliament, including giving evidence before the Bill Select Committee and Foreign Affairs Select Committee, suggesting amendments to the Bill, and successfully assisting members of the House of Lords in arguing for specific changes to the proposed regime.
In this briefing, we focus specifically on the application of the NSI regime to real estate transactions, in particular:
- corporate acquisitions involving the acquisition of control over an entity which owns land; and
- asset acquisitions involving the purchase of land.
We set out some general practical guidance for investors in this context, but please do get in touch if you would like to discuss the potential application of the NSI regime to a particular transaction.
In addition to the types of real estate transactions considered in this briefing, real estate investors should also be aware of the potential application of the NSI regime to indirect investments via real estate investment funds (see our previous briefing on the application of the NSI regime to private equity investments) and lending arrangements relating to the acquisition of land or secured against land (see our forthcoming briefing on the application of the NSI regime to lending arrangements which will be published shortly).
Click here to read the full briefing.