New land restriction laws for foreigners jolt Lankan companies
Sri Lankan companies have been thrown into disarray and confusion over a new Land (Restrictions on Alienation) Bill presented in parliament this week which affects land and property if foreign shareholding in a company exceeds the 50 per cent limit.Several company heads told the Business Times that they were shocked after they came to learn about the ramifications of Section 2 (2)(b) of the bill which states that foreign ownership should not exceed 50 per cent for a consecutive period of 20 years from the date of transfer of land. Under the proposed law, all transactions after January 2013 – the effective date – will be affected.
In the event, the foreign ownership exceeds 50 per cent during this period the company stands to be deprived of the title to the land from date of shareholding crossing the 50 per cent foreign ownership. The bill says such land transactions will be null and void but is silent on whether the land will or not revert back to the former owner (Example: If company A suddenly finds foreigners own more than 50 per cent of its stock, will its land then be owned by its former owner?)
While it is unclear whether listed companies, facing such a situation, stand to lose their land with office buildings and factories, they have no control over stock exchange transactions where foreign investors can buy shares without knowing the percentage of shares held by foreigners.
They warned the government that several of already commenced and upcoming multi billion rupee projects will be at risk by enacting this piece of legislation, and also called for more clarity on the new provisions.
The Land (Restrictions on Alienation) Bill was presented in parliament to give legal effect to the 2013 budget proposal to prohibit the sale of land to foreigners. The same proposal was made in the 2014 budget as well.
This bill was delayed for over 20 months as the Treasury was grappling with many issues connected to it and owing to pressure exerted by influential persons connected to top authorities, official sources revealed. When contacted over the phone to seek legal implications of the bill, Arittha R. Wikramanayake, the well-known lawyer specialising in Corporate Law, Securities Law and Trade Law, told the Business Times that in accordance with the provisions of the new bill, companies have no control over the share holding and they face a risk of losing the ownership of lands if the foreign share ownership exceeds 50 per cent.
Asked for comments, KMPG Tax Attorney Suresh R.I. Perera said that though the intention is clear and good there are far reaching consequences (from some provisions). “In the first instance, is it practical to deprive a company the title for the land after a lapse of many years? Who would become the owner of the land? Is it practical to rest the ownership on the original owner?”
He said another practical aspect is that the nature of share trading in the stock exchange is such that, “it is not convenient for a person to monitor the percentage of ownership …
Asked for comments, KMPG Tax Attorney Suresh R.I. Perera said that though the intention is clear and good there are far reaching consequences (from some provisions). “In the first instance, is it practical to deprive a company the title for the land after a lapse of many years? Who would become the owner of the land? Is it practical to rest the ownership on the original owner?”
He said another practical aspect is that the nature of share trading in the stock exchange is such that, “it is not convenient for a person to monitor the percentage of ownership … by foreigners hence in some instances the foreign ownership threshold could inadvertently go beyond 50 per cent”.
On another point, he added: “Another concern, in considering that for the expansion of companies the land acquisition is crucial, is it reasonable to accept a company not to increase the foreign stake beyond 50 per cent for duration of 20 years. How would this impact the growth of the capital market?”
The Business Times was off the blocks first with this issue reporting in an August 3 story titled “Draft laws to ban foreign ownership of land” the plan to bring in laws to give legal effect to the budget proposal. While the business community didn’t express concern at the time of the budget proposal what has now created anxiety are the provisions in the bill which are unclear on how it would be implemented.
A senior government official said the Treasury Secretary came under severe criticism when he tried to clarify certain issues pertaining to foreign and expatriate ownership in condominiums under the 2012 and 2013 budget proposal as the new law would apply on the ownership of a Condominium Parcel situated on or above the fourth floor of a building.
A letter was reportedly sent by the Treasury to the Commissioner General of Lands directing him not to registrar land deed transfers including condominiums of foreigners with effect from January 1 2013 in a bid to prohibit sale of state land to foreigners.
Several land related laws including the Registration of Documents Ordinance, the Notaries Ordinance and the Title Registration Act should also be amended to prohibit foreigners from buying land in the country, making the issue more complicated, the senior official said.
However he pointed out that the bill was presented in the national interest and provides exemptions including for select foreign investments, therefore fears were unnecessary.