By Catherine Reid
Total Property - Issue 2 2016
Commercial property in New Zealand continues to attract foreign investors with high profile activities including Australia’s David Jones’ acquiring Kirkcaldie & Stains’ lease in Wellington.
For a prospective investor, it’s important to consider New Zealand’s foreign investment regime as some acquisitions may require Overseas Investment Office (OIO) approval.
The key legislation governing overseas investment is the Overseas Investment Act 2005 (“the Act”). The OIO oversees the Act and assesses applications from foreign investors intending to invest in New Zealand.
OIO approval is required when an ‘overseas person’ or an associate of an overseas person intends to invest in ‘sensitive’ New Zealand assets.
An ‘overseas person’ is neither a New Zealand citizen nor a person ordinarily resident here. A company, partnership, joint venture or trust can also be an ‘overseas person’. Examples include:
companies incorporated outside New Zealand;
companies where an overseas person has 25 percent or more ownership or controlling interest; and
trusts where an overseas person has a beneficial interest in or entitlement to 25 percent or more of the trust’s property.
People associated with an overseas person, like a New Zealand agent or business partner, may require OIO approval to invest here even if they’re citizens.
In respect to “sensitive assets” there are two main types relevant to commercial property:
sensitive land or an interest in sensitive land (eg: buying shares in a company that owns sensitive land); or
significant business assets worth over NZ$100 million.
Common examples of ‘sensitive land’ in the commercial property context include:
Historic buildings with floor areas greater than 4,000m2;
Waterfront buildings of any size where land includes foreshore or seabed;
Industrial properties greater than 4,000m2 in areas including or adjoining a reserve or public park.
However, interest in ‘sensitive land’ is not limited to acquiring a freehold estate. Leases involving sensitive land for a term greater than three years (including rights of renewal) are also caught by the Act.
It’s important to identify property classified as ‘sensitive land’ quickly because entering into an Agreement for Sale and Purchase will immediately create an equitable interest in land, triggering a breach of the Act, unless the agreement is conditional on obtaining consent under the Act.
If a property does not include sensitive land, an overseas person or associate may still need OIO approval for business acquisitions where:
(a) the price paid for an existing asset (such as a building) or business (either by one transaction or a series of related transactions) exceeds NZ$100 million;
(b) the total expenditure for establishing a new business exceeds NZ$100 million; or
(c) the amount paid for the shares, or the value of the New Zealand assets of a company (including 25% or more subsidiaries) exceeds NZ$100 million. Following implementation of the Trans-Pacific Partnership Free Trade Agreement (“TPP”), the threshold for business acquisitions increases to $200 million for investors from TPP countries. For Australian non-government investors, the threshold is NZ$498 million.
If an overseas person or associate intends to acquire sensitive land or a significant business asset, the investor will need to submit an application to the OIO. All applications must satisfy the “investor test” which involves assessing if an investor is of good character and has relevant business experience and acumen. If a commercial property transaction requires OIO approval, it’s important the investor submits a high quality application addressing all the OIO’s requirements. If a commercial property involves ‘sensitive land’, the application must also satisfy the “benefit to New Zealand test”. This involves assessing 21 “benefit to New Zealand” factors like new jobs or additional development. Following the Crafar farm litigation in 2012, benefit claims made by foreign investors must be compared against a hypothetical New Zealand purchaser.
Alternatively, an investor wishing to move here doesn’t need to demonstrate a benefit to New Zealand, but will need to apply for a residence class visa and demonstrate to the OIO they intend to live in New Zealand indefinitely.
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