'Overseas persons' and 'sensitive land'

The Overseas Investment Act 2005 regulates who can own “sensitive land” in New Zealand.  If an “overseas person” wishes to purchase “sensitive land”, they must first seek the consent of the Overseas Investment Office (OIO).  This imposes strict requirements on those advising clients wishing to purchase residential property.

What is “sensitive land” and why is ownership of it regulated?

The purpose of the Act is to “acknowledge that it is a privilege for overseas persons to own or control sensitive New Zealand assets”.  The Act defines “sensitive land” as including marine and coastal areas, conservation land, lakebeds, land on New Zealand’s minor islands, and, from 2018, residential land.

Who is an “overseas person”?

An individual who is not a New Zealand citizen and is not “ordinarily resident in New Zealand” is an “overseas person”.  The Act sets out precise criteria to be “ordinarily resident in New Zealand”, requiring the holding of particular visas, minimum physical residency in New Zealand, and tax residency requirements. 

Companies and trusts will also be an “overseas person” where they meet certain thresholds under the Act.  In broad terms this includes where 25% or more of the control of these entities is held by overseas persons.

The Act also requires those purchasers who are an “associate” of an overseas person to obtain OIO consent.  A person may be an “associate” of another, depending on the “control, direction, power, influence, arrangement, or other relationship” between them.  In this respect, the Act attempts to capture those situations where an otherwise exempt person (such as a New Zealand citizen) may be purchasing on behalf of an overseas one.

Comment from Edward Fox

Prior to settling the purchase of a property, a buyer must sign a declaration that they are not an “overseas person”.  As set out above, the test under the Act involves precise criteria that, if not met, will mean the intended buyer requires OIO consent.  Under s 51C of the Act, a practitioner is also prohibited from executing the transfer of property without the declaration, or if there are reasonable grounds for believing that the declaration is materially incorrect.  A breach of s 51C can attract civil penalties of up to $20,000 under the Act.   

This should give pause to those instructed by buyers looking to purchase residential property.  If a buyer requires OIO consent, the transaction cannot settle without it.  OIO consent applications take time, and typically also require specialist practitioners to make the application on a buyer’s behalf.

This could mean that settlement is delayed, pending consent being obtained.  This may expose a buyer to late settlement interest.  At worst, a vendor may be entitled to cancel, placing the buyers deposit at risk of loss, together with exposure for the vendor’s resale costs (and any associated losses).  Alternatively, if the transaction settles and the “overseas person” has acquired “sensitive land” without OIO consent, this could expose them to significant penalties under the Act, including civil proceedings, fines, and even imprisonment.

Accordingly, where OIO issues may be present, practitioners need to ensure that their clients are correctly advised about their ability to complete purchases.  The consequences of a failure to do so could expose a practitioner to their client’s losses – either in failing to complete the sale of a property, or for losses under the Act. 

EDWARD FOX IS A SENIOR ASSOCIATE AT FEE LANGSTONE