The Overseas Investment Act 2005 provides that a transaction needs consent when there is an overseas investment in sensitive land. What is sensitive land? Which type of property transactions are caught?
What types of property transactions are caught?
A transaction requires consent under the Overseas Investment Act if it will result in an overseas investment in sensitive land. That happens when an overseas person, or an associate of an overseas person, acquires an interest in sensitive land. That interest in land could be a freehold estate, or a lease, or any other interest for a term of three years or more, including rights of renewal. An interest in land includes a legal or an equitable interest in the land. Exempted interests in land are easements or a profit a prendre*.
Acquisition includes obtaining ownership or coming into possession by any means. Overseas investment in sensitive land also includes the scenario where, for example, shares are acquired in a company that owns or controls sensitive land resulting in 25% ownership or control held by an overseas person.
(Significant business transactions of $100 million or more also require consent but that is not the focus of this blog.)
What is residential (sensitive) land?
Changes to the Overseas Investment Act mean that all residential land in New Zealand is now sensitive land. Overseas persons seeking to acquire the sensitive land require consent or might now be completely precluded from acquiring it.
Residential land is land that has a property category of residential or lifestyle in the relevant district valuation roll (a character category code of R or L). You can check this online at www.qv.co.nz. It is important to consider at the time of signing a contract but also prior to settlement. The requirement to seek consent might, for example, be triggered at settlement by the change in the category of land on the rating valuation roll in the intervening period.
The Overseas Investment Act adopts a “stop/go” test. That means we check the rating roll to determine if the land is residential or not. We do not, for example, think about what the land is used for currently. There are some timing issues that come into play with that and there might be unintended consequences.
Under the Rating Powers Act, revaluations and categorisation occur every 3 years. A landowner can request a revaluation or the Council can elect to carry one out outside this cycle. In the development context, acquiring commercial land to develop residential property (and vice versa), will need consideration. Consider whether and when to request the land be re-categorised, to avoid complexities with it being designated as residential land.
For commercial leases, it will be prudent to consider what category of land you are dealing with at www.qv.co.nz. For example, land categorised as residential could be for mixed-use, but under a single title.
Residential land also includes a residential flat in a building owned by a flat owning company where there may just simply be a licence to occupy that flat.
Residential land and otherwise sensitive land
Acquisition of other sensitive land by overseas persons requires consent. That part of the law is not itself new, but there is now a different overlay with the residential land requirements. To determine if the land is otherwise sensitive under the Overseas Investment Act requires a consideration of:
- location e.g. land on Waiheke Island is sensitive land if larger than 4000m2 and land on some islands is sensitive land regardless of size;
- typology e.g. urban land is less likely to be sensitive;
- the size of the land and:
- what kinds of things are on or within the land e.g. wahi tapu or a historic place, foreshore or seabed
- what adjoins the land e.g. foreshore, a lake bed or a reserve
This matters because, for example, there is a different definition of an overseas person under the Act, depending on the land type. To determine which definition of ordinarily resident in New Zealand applies, we need to consider whether the land is:
- otherwise sensitive
- both residential and otherwise sensitive
- or not sensitive at all
Consent pathways (i.e. what you need to do to obtain consent and whether you might obtain consent) differs for residential land, depending on whether the land is also otherwise sensitive.
Understanding what land you are dealing with under the Overseas Investment Act 2005 is now more complex for NZ land transactions. There are different consequences depending on if the land is sensitive or not, and depending also what kind of sensitive land it is. It requires care, as the penalties for non-compliance are significant. Consider whether a transaction involves sensitive land at the very beginning of a potential land sale and purchase or lease.
*A profit a prendre enables a person to take part of the soil or produce of land that someone else owns. It is a right to take from the land, as in the mining of minerals and is, therefore, distinguishable from an Easement, which is a nonpossessory interest in land generally giving a person a right of way on the property of another.