Are you considering selling farm land to someone from overseas? Charlie Brown, a partner with the Christchurch Lawlink firm Wynn Williams & Co, outlines proposed changes to the Overseas Investment Act 1973.

The Overseas Investment Amendment Act 1998 will be of interest to anyone selling farm land and overseas people buying it.

Though the Amendment Act was passed by Parliament on 24 March 1998, it has not yet come into force. New regulations are presently being drafted for the Act, and therefore it is expected that it will come into force later this year.

Farm Land - A New Category
The Act recognises two distinct types of overseas investment in New Zealand - "non-land" and "land". There are new criteria for assessing overseas investments involving "farm land" as a category separate from "land".

"Farm land" is defined as land used mainly for agricultural, horticultural, or pastoral purposes, or for keeping bees, poultry or livestock. Excluded from it are:

1. Land used mainly for forestry (though farm land acquired to develop new forestry is captured by the definition); and

2. Forestry rights and cutting agreements.

Sales On The Open Market
The Overseas Investment Commission ("OIC") will not approve the sale of farm land to overseas buyers unless it is first offered for sale on the open market to New Zealanders. The OIC will require evidence of genuine efforts that this has been done. The new regulations will outline the procedure for meeting this requirement.

The Treasurer and Minister of Lands may, by reason of circumstances relating to the investment, waive the open market requirements. An example might be shares in New Zealand publicly-listed companies owning farm land, where the waiver would ensure the shares can continue to be traded on the stock exchange.

A National Interest Test
Overseas buyers will have to prove that their purchase will be in New Zealand's interest before being permitted to buy the farm land. The Treasurer and Minister of Lands will take various matters into account when assessing this including such matters as to whether experimental or research work will be carried out, creation of new jobs, and the introduction of new technology.

The overseas investor will need to provide detailed information and demonstrate that the investment will result in substantial benefits to New Zealand. Overseas investors can detail much of this by including a business plan with the OIC application. What this means is that farm land investment in New Zealand will need to be reasonably substantial. It will be difficult to satisfy the national interest test for smaller farms and lifestyle blocks. These types of applications will probably be declined.

Conclusion
It is now common practice with OIC applications to include information about the sales programme on the open market and the national interest test, even though these are not required until the new laws are passed.

The interpretation of the new laws will depend largely upon how strictly the government of the day wants the OIC to assess applications. Governments can issue directives setting out how they want the OIC to administer the law.

Copyright The Lawlink Group Ltd 2001

Every effort has been made to ensure that this information is accurate. However, it is general introductory information only. It does not constitute legal advice and should not be relied on as such. Specialist legal advice should be sought in particular matters.

Charlie Brown is a Partner in the Lawlink firm of Wynn Williams & Co. He practises in the area of business law, which includes giving advice on Overseas Investment Commission applications and the acquisition of land and business assets by foreign investors.

Web site: : Wynn Williams

E-mail charles.brown@wynnwilliams.co.nz

July 2001