Overseas Investment Act - the aftermath
Over the last year or so we have issued a series of alerts on significant changes to the Overseas Investment Act (OIA) – links below1-5.
This is still a developing landscape – for example, the final deadline for developers to apply for a transitional exemption certificate (allowing them to sell apartments off the plans for overseas persons to live in – i.e. with no requirement for the overseas person to on-sell after acquisition) expired on 21 February 20195.
In the commercial property space we are also starting to see the new regime have an unexpected impact on what would ordinarily be seen as commercial transactions. By way of a reminder, since 22 October 2018 (when the Overseas Investment Amendment Act 2018 became law), land categorised (either wholly or in part) as ‘residential’ or ‘lifestyle’ in the district valuation roll is sensitive land under the OIA.
We have encountered some interesting examples of properties being used for commercial purposes that are ‘caught’ as residential land under the OIA. These include:
- The sale of a physio business operating out of a number of properties, one of which was deemed residential;
- The sale of a portfolio of hotels – each hotel being deemed residential land;
- The sale of a commercial property that includes an interest in a shared access lot/driveway owned jointly with an adjoining “residential property”;
- Billboard sites (both standalone and attached to buildings).
It is certainly debatable whether or not the ‘average person in the street’ would consider the properties in these examples to be residential in the more common sense of the word – and this is compounded by the fact that in each case the relevant Councils are charging commercial, not residential, rates for these properties.
Because properties like these are deemed residential land, we are giving more advice and assistance to our commercial clients on the new “non-residential use” option for obtaining OIA consent. This is one of three new pathways open to the commercial sector for obtaining consent where the land is residential, but not sensitive land for any other purposes (i.e. where it would not have been caught under the ‘old school’ OIA sensitive land tests). They are:
- Increased housing – where residential land is acquired to build new residences or long-term accommodation facilities. Subject to certain exceptions, the Applicant must on-sell the dwellings built.
- Non-residential use – where land is used for non-residential purposes (e.g. a supermarket, offices, a shopping mall, a hotel) in the normal course of the Applicant’s business, and not held for future use for residential purposes.
- Incidental residential use – where residential land is acquired in support of the Applicant’s business – e.g. housing for staff where no reasonable alternative exists, or land for use as a ‘buffer’ against neighbouring uses. Again, the Applicant must intend to use the land in the ordinary course of its business.
Subject to specified exemptions, there are mandatory conditions that will apply to a consent granted under each of these options.
The Overseas Investment Office’s guideline processing times for these consent pathways are shorter, and the application fees lower, than the equivalents for the acquisition of other sensitive land.
The OIA is now having a greater than ever impact on property transactions – including those where, on the face of it, it would not ordinarily be expected to. Since both vendors and purchasers of sensitive land commit an offence under the OIA if they proceed with a transfer without consent (and the potential penalties are onerous), it is an issue neither party can afford to ignore. If you have any questions or would like advice on any aspect of the OIA, its potential impact on your transactions or plans, or the consent process, our team would be happy to assist.
Our firm has also recently updated our “Investing in New Zealand Guide” which includes a section containing a very useful summary of the essential aspects of the regulatory regime applying to overseas investment in New Zealand, the OIA in general, and the OIA consent process. Please feel free to share this link with any overseas persons you are aware of that may be contemplating investing in New Zealand.
1 “New hurdles for overseas investment in farm land” (30 November 2017): https://minterellison.co.nz/our-view/new-hurdles-for-overseas-investment-in-farm-land
2 “Proposed changes to the Overseas Investment Act – Government takes steps against overseas speculators” (15 December 2017): https://www.minterellison.co.nz/our-view/proposed-changes-to-the-overseas-investment-act-government-takes-steps-against-overseas-speculators
3 “Amendments to proposed OIO ‘ban’” (20 June 2018): https://minterellison.co.nz/our-view/amendments-to-proposed-oio-ban
4 “Overseas Investment Amendment Act now a reality” (29 August 2018): https://minterellison.co.nz/our-view/overseas-investment-amendment-act-now-a-reality
5 “OIA Property Developers exemption available now” (11 September 2018): https://minterellison.co.nz/our-view/oia-property-developers-exemption-available-now