The National Security and Investment Act 2021 (NSIA 2021) comes into effect on 4 January 2022.
A new statutory regime
Once in force, the NSIA 2021 will establish a new statutory regime allowing the government to scrutinise and intervene in certain acquisitions for the purposes of protecting the UK’s national security. It will be administered by the Department of Business, Energy and Industrial Strategy (BEIS) and the decision maker will be the Secretary of State for BEIS (SoS).
Acquisitions of interests in land which give rise to a risk to national security are subject to potential call-in by the government. A voluntary notification and clearance procedure applies to acquisitions of assets (e.g., land). There is a mandatory notification regime for the acquisition of qualifying entities (i.e., businesses). The government has the power to block acquisitions for up to 5 years after completion.
Many real estate transactions are unlikely to give rise to national security concerns but awareness of the new legislation and its potential application are important as the full implications for real estate are not yet clear.
A qualifying acquisition is one which involves the acquisition of a right or interest in, or in relation to, a qualifying asset or qualifying entity, the entity or asset being acquired is from, in, or has a connection to the UK and the level of control acquired over the qualifying entity or qualifying asset meets or passes a certain threshold.
A qualifying entity encompasses most forms of business, including companies, LLPs, partnerships and unincorporated associations. A qualifying asset includes land.
Term ‘national security’ is intentionally not defined in the NSIA 2021. Notifiable acquisition regulations identify 17 sensitive areas of the economy which are considered more likely to pose a national security risk. These include, artificial intelligence, civil nuclear, communications, computing hardware, data infrastructure, defence, energy, military, satellite and transport.
A BEIS section 3 statement of 2 November 2021 provides illustrations of transactions which may give rise to national security concerns. It says, “Land is mainly expected to be an asset of national security interest where it is, or is proximate to, a sensitive site. Examples of such sensitive sites include critical national infrastructure sites or government buildings. However the Secretary of State may also take into account the intended use of the land”.
Call-in powers and notification
To enable the SoS to undertake a national security assessment, the SoS will have powers to call-in acquisitions. This is a retroactive power. The SoS can call-in acquisitions which have completed on or after 12 November 2020.
Asset acquisitions are not subject to mandatory notification requirements under the NSIA 2021, but acquisitions of qualifying assets are within the scope of the call-in powers. Parties to an acquisition may therefore decide to make a voluntary notification if they wish to be certain that their acquisition will not be called-in.
The SoS can assess acquisitions up to 5 years after they have taken place and up to 6 months after becoming aware of them if they have not been notified. Following a national security assessment, the acquirer will be informed whether the acquisition is cleared and can go ahead, can go ahead subject to certain conditions or is blocked and cannot go ahead.
Implications for real estate
The full implications of the NSIA 2021 for real estate are not yet clear. At its most obvious, acquisitions leading to ownership of land, whether freehold or leasehold, are potentially impacted. It will therefore be important to consider the potential application of the screening and notification regime on acquisitions involving the purchase of land and those involving the acquisition of control over an entity which owns land.
The obligation to gain clearance will fall on the buyer who will need to consider whether a planned transaction has to be notified or, more likely, whether there is a risk that the transaction will be called-in for an in-depth assessment.
A seller will need to be alert to the risk of a transaction being called-in and cautious of the risk of a transaction being declared void if the sale is notifiable but the buyer has failed to obtain clearance.
Links to BEIS guidance
Links to legislation