Call 07 834 6000

A Privilege For Overseas Persons To Own New Zealand Farm Land

10 October 2011

The application by Pengxin International Limited to purchase the Crafar farm empire was lodged with the Overseas Investment Office (OIO) on 14 April 2011 and at the time of writing the OIO is still considering whether such a privilege should be granted.

 

Overseas Investment Act 2005 (OIA)

The sale of New Zealand farm land to overseas persons is regulated by the OIA. The purpose of this legislation is to acknowledge that it is a privilege for overseas persons to own or control sensitive New Zealand assets by requiring them to meet certain criteria before they can purchase those assets.

An overseas person is someone who is neither a New Zealand citizen, nor ordinarily resident in New Zealand. A company, a partnership, a joint venture or a trust can also be an overseas person.

 

Sensitive Land

The legislation is complex and covers business assets as well as land. Certain transactions involving the sale or lease for more than three years of “sensitive land” must be approved by the OIO. In simple terms, “sensitive land” is non-urban land of more than 5 hectares (including farm land) and land on islands, at the foreshore and on the beds of rivers and lakes that meets the area thresh-holds. Land adjoining the foreshore, seabed, lakes, reserves and regional parks meeting the area thresh-holds may also require OIA consent.

 

The Investor Test

The overseas investors must meet an “investor test” before they can purchase or lease sensitive land. This test requires the investors to:

  1. Have sufficient business experience and acumen
  2. Make a sufficient financial commitment
  3. Be of good character, and
  4. Not be ineligible individuals under the Immigration Act 2009.

In addition, consent to acquire sensitive land will only be granted if:

  1. the transaction will, or is likely to, benefit New Zealand; or
  2. the overseas person intends to reside in New Zealand indefinitely.

Benefit to New Zealand is measured against a large number of economic and conservation factors. If the relevant land includes non-urban land that exceeds five hectares the benefit must be “substantial and identifiable”.

 

Foreshore, Seabed, Riverbed, or Lakebed

If the land is foreshore, seabed, riverbed or lakebed, and the overseas person does not intend to reside in New Zealand, then the owner must offer it to the Crown before it can be sold to the overseas investor. This can be done during the application process.

 

What if an Overseas Person Wants to Buy Your Farm?

The standard agreement form provides for the purchaser to indicate whether the consent of the OIA is required. If the consent of the OIA is required then the agreement will be conditional on that consent being obtained. You will need to make sure that the agreement allows enough time for the purchaser’s application to the OIO to be processed. If the consent is not obtained in time, either you or the purchaser can end the agreement.

The application for consent to the sale will need to show that the land has been advertised for sale on the open market, but you do not need to complete the advertising before you sign an agreement to sell to an overseas person. However, the advertising must be completed before OIO consent will be granted. In addition, you can accept any offer you wish (whether from a New Zealander or otherwise), but you must show that you could have accepted offers from New Zealanders for a 20 working day period.

If the purchaser incorrectly indicates on the agreement that OIA consent is not required when it is, then you may be able to cancel the agreement and sue the purchaser for any losses you have suffered. However, suing an overseas person may not be an easy process. If the sale has been completed, the OIO may apply to the Court to have the transaction cancelled and could order disposal of the land.

It goes without saying that you will be seeing your lawyer before you put your pen anywhere near this type of paperwork!

 

Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.

_________________________________________________________________________

Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.