Overseas Investment Amendment Act 2021: The Second Amendment
Today marks another milestone in the constantly changing landscape of the Overseas Investment Act 2005 (the Act), with the coming into force of several of the provisions of the Overseas Investment Amendment Act 2021 as part of the Government’s stated intention to reduce the number of ‘lower risk’ transactions requiring consent, and better manage higher risk transactions and/or assets of significance. Our previous news alert summarising these new changes can be seen here.
From a property perspective, the most significant changes to the Act have still to come – with amendments to the counter-factual and benefit to New Zealand tests, and new farmland advertising rules and requirements, all intended to be implemented by the end of 2021. However, the new rules around adjoining land and lease transactions involving sensitive land will have a practical impact on property matters (although, with the new lease rules, appearances may be deceiving as to how big of a ‘game-changer’ this is likely to be).
Key changes from today
Adjoining sensitive land
The new Schedule 1, Part 1, Table 2 of the Act (adjoining land) now applies to all transactions (previously it applied in limited scenarios under the ‘Urgent Measures’ standing consent provisions). Target land being ‘caught’ because it adjoins a piece of land ‘categorised’ as a “reserve” (or even more obscurely, because it adjoins a road which adjoins the foreshore) has been a long standing problem, so it is hoped the removal of certain categories of ‘low-level’ reserves from the list of adjoining land will better align with the underlying principles of the Act. It also means that sensitive land can be more easily determined through searches of public registers, which is a plus for property practitioners.
A lease interest in sensitive land now needs to be for a period of 10 years or more to be ‘caught’ (previously the threshold was 3 years or more). However, whereas the previous 3 year test only related to the remaining term of the lease (including rights of renewal), the new test also takes into account previous interests in the same (or substantially similar) land. The requirement to look backwards as well as forward means that it remains to be seen exactly how big a difference the new lease rules will make to the numbers of transactions that are ‘caught’ – but one thing is certain, the well-publicised switch from 3 years to 10 years is not as straight-forward as it might appear, and in many circumstances will need some detailed analysis of more than just the length of time remaining under the existing lease.
The 3 to 10 year change only relates to non-residential land. For residential land, a lease of 3 years or more (including rights of renewal) will still be ‘caught’.
Incremental increase in ownership
Before today, the Act required overseas investors to obtain consent to any increase in the ownership or control interests in relation to sensitive land (subject to the shareholder creep class exemption).
Now, an overseas person can increase their share of ownership or control in an entity owning sensitive land without consent so long as they stay within specified thresholds. The thresholds are:
- If the existing interest is under 25%, the threshold is 25% or more;
- If the existing interest is over 25% but under 50%, the threshold is 50% or more;
- If the existing interest is over 50% but under 75%, the threshold is 75% or more; and
- If the existing interest is over 75% but under 100%, the threshold is 100%.
Whereas before, the investor test (which takes into account statutory character and capability factors) had to be passed each time an overseas person applied for consent, now repeat investors that pass the new investor test will be subject to a more streamlined assessment (unless there have been substantial changes to the individuals with control of the investor).
An investor may also complete a standalone application to be pre-screened against the investor test, allowing the investor to pass the test in preparation for a future acquisition.
National Interest Assessment
The national interest test will automatically apply if non-NZ government investors (from the same country) acquire a more than 25% interest in a target with sensitive assets (the previous threshold was 10%). The relevant Minister has the power to exempt “passive” foreign government investors from the automatic application of the test. The criteria for such exemptions is to be prescribed in regulations.
Certain investors no longer “overseas persons”
A number of entities that are both New Zealand-incorporated and New Zealand-listed (and, subject to various thresholds, managed investment schemes) will no longer be “overseas persons” for the purposes of the Act.
More to come
As mentioned above, new counter-factual and benefit to New Zealand tests, and new farmland advertising rules and requirements have still to come before the end of the year. In addition, the next round of changes will also include:
- the enshrinement in the Act of a proportionality approach to the benefit to New Zealand test (previously this only came into play via a Minister’s directive letter);
- prescribed timeframes for decision-making;
- rules to replace existing ‘special land’ requirements; and
- greater protection of sites of cultural significance for iwi, hapu and whanau.
We will be maintaining a watching brief on each of these.
Please get in touch with one of our experts if you would like to discuss in further detail how any of the above amendments to the Act (effective now, or still to come) may affect your business or transaction.
Authored by Victoria Tatam, one of the Senior solicitors in our Property team.