IntroductionRecent changes to the Overseas Investment Act 1973 ("Act") and the Overseas Investment Regulations 1995 ("Regulations") mean that the process for the sale of farm land to overseas persons has become more onerous. Whilst the amendments do not prohibit the sale of farm land to overseas persons, the vendor must now demonstrate that the land was first offered on the open market for sale to New Zealanders.
This change will slow down the process of sale, but will have little overall effect on a vendor's decision on whom it wishes to sell to. However, if delays in the sale process are to be avoided, it is important for anyone selling "farm" land to be aware of, and to address, the specific marketing and sale obligations at an early stage where it is possible a sale may be made to an overseas person.
Background - The LegislationThe Regulations and the Act regulate investment in New Zealand by overseas persons, whether by way of the direct purchase of assets, or by the acquisition of shares in corporate entities. The definition of "overseas person" is comprehensive, and includes New Zealand companies which have in excess of 25% foreign ownership.
There are two main classes for which consent of the Overseas Investment Commission may be required: "land"; and "non-land" acquisitions. Non-land applications are essentially those involving the acquisition of assets or shares by an overseas person with a value in excess of NZ $50 million. Land applications must be made when an overseas person acquires an interest (whether directly or indirectly, for instance by purchasing shares) in certain "sensitive" land. Sensitive land includes non-urban land over 5 hectares, and other land adjoining or including the foreshore, lakes, reserves, islands, and land designated for historic places purposes or with significance to Maori.
Application for consent is by way of letter and there is no prescribed application form. The Regulations and the Act prescribe certain matters that must be demonstrated to be met for an Application to be successful.
Distinction between Farm and Non-Farm LandThe Overseas Investment Amendment Act 1998, and accompanying Regulations, came into effect on 1 February 2002. As a result three distinct types of overseas investment are now recognised. These comprise "non-land", "farm land" and "land other than farm land" applications. The Amendment Act defines "farm land" as:
"land used exclusively or principally for agricultural, horticultural, or pastoral purposes, or for the keeping of bees, poultry or livestock:"
Using this definition certain "land" applications will now be caught, including those relating to traditional type farms as well as for vineyards, orchards and the like. The definition does not however include land used principally or exclusively for forestry.
It is worth noting that it is not just the outright purchase of farm land (whether directly or indirectly by purchasing shares) that
will be subject to the changes to the Act and the Regulations, but also more general commercial transactions where the target may, as part of its operation, own farm land. For example, this would particularly catch companies owning vineyards.
The Amendment Act introduces two principal changes to the process for the granting of an application for "farm land". These are:
No approval to an acquisition of "farm land", or any acquisition of shares in a farm owning entity, may be granted unless the land has first been offered for sale or acquisition on the open market to New Zealanders. The Regulations prescribe standards for what the advertisement must contain, the medium within which the advertisement must be published, and
the length of time for which the land (or shares) must remain available for acquisition (see below). In determining an application for the acquisition of "farm land", the test to be met is whether the acquisition is in the "national interest". In meeting this test the Ministers are now required to consider "whether the overseas investment will, or is likely to, result in substantial and identifiable benefits to New Zealand or to a region, district, locality, or other part of New Zealand". The actual benefits to be assessed by the Commission have not changed, and are those which previously applied to land applications relating to agricultural land.Other than the requirement to comply with the advertising and marketing procedures, there will be little change to the actual information to be provided in an application. The key change will be the shift in focus of such information to the effects on the local area within which the land is situated.
Marketing/Advertising ProcedureThe Regulations prescribe certain criteria to be met to ensure any offer is genuine. In particular each advertisement must contain:
a general description of the relevant land; a statement that the farm land or farm land shares are for sale or acquisition and that offers are sought from potential purchasers; and the contact details of the owner or person to whom offers may be made.The advertisement must be published in a medium generally used for advertising sales of land that is generally available to people in the district where the land is situated. The advertising requirements will be met by:
an advertisement on an internet site generally used for advertising sales of land for 20 working days; an advertisement in the property section of one edition of a newspaper; a notice or sign at a real estate agent's office for 20 working days; a placard on the relevant land for 20 working days; or an advertisement in one edition of a real estate sales publication. The farm land or shares must be available on the open market for at least 20 working days after an advertisement is first placed. However, if the advertisement states or implies that the farm land or shares will be available for a longer period, the property must remain available for that longer period. To further meet the criteria, an advertisement must be published within the 12 month period before the overseas person applies for consent or enters into the transaction, whichever is the sooner.
Whilst it would seem that the barest of efforts could be made by the vendor to satisfy the marketing requirements, for instance a placard on a remote corner of the land, it seems to us that the Commission will require proof of reasonable genuine efforts being made to market the property.
ExemptionsAt the same time the Overseas Investment Exemption Notice 2001 was published to exempt certain classes of transaction from the advertising procedure. These are reasonably specific in application, and we suggest that advice be taken as to whether any specific transaction would fall within the exemption. The Exemption excludes such things as acquisitions from family members and the acquisition of shares in companies quoted on the NZSE.
ConclusionAlthough the changes will affect only a limited class of land, the advertising procedures will add at least one month to any sale or acquisition programme. In addition many vendors may not wish to have to publicly advertise the properties that are being sold. We suggest that any person thinking of selling or acquiring land that may require Overseas Investment Commission consent seek advice prior to making any offer or placing the property for sale.
If you would like more information or would like to speak to someone in our M&A team, please contact:
David Lewis: dlewis@kpmg.co.nz
Matthew Pasley: mpasley@kpmg.co.nz
David Shillson: dshillson@kpmg.co.nz
Nick Scott: nscott@kpmg.co.nz
Rob Noakes: rnoakes@kpmg.co.nz,
Martin Dalgleish: mdalgleish@kpmg.co.nz
Ross O'Neill: rsoneill@kpmg.co.nz.
John Land: jland@kpmg.co.nz
The contents of this document are for information purposes only and should not be acted upon without specific legal advice. KPMG Legal does not accept any liability other than to its clients and only then in relation to specific requests for advice. KPMG Legal is an independent law firm.
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