The Overseas Investment Amendment Act 2021 came into force on 5 July 2021, amending the Overseas Investment Act 2005 with a package of reforms aimed at strengthening aspects of the regime for “high risk investments”, while also seeking to streamline the process for investors. This was the second round of legislation implementing sweeping overseas investment reforms, with a number of changes already having been introduced in mid-2020.
Many provisions of the 2021 amendments are already in force, but the final elements will take effect on
Stronger requirements around the advertising of farm land
Agreements involving overseas persons acquiring interests in New Zealand farm land that are entered on or after 24 November will be subject to stronger requirements around advertising.
Farm land will need to be advertised for purchase by a New Zealander on the open market, with that advertising completed, or an exemption obtained, before any agreement to sell the land to an overseas person can be entered into. There are also requirements around where such advertisements must be made and how long they must run for.
Under the previous regime it was possible to make such an agreement conditional on advertising being completed.
In our 19 May publication on the passing of overseas investment reforms we noted that changes around farm land investments, which also included the ability for Ministers to apply a more stringent benefits test to investments in farm land, could prove a major impediment to corporate transactions if they happened to include farm land. However, exemptions are possible, including where farm land is more properly used for commercial, industrial, or large residential developments.
In addition to the advertising regime, the farm land benefit test will apply a higher benefit threshold, focus more on economic benefits, and place greater weight on oversight or participation by New Zealanders, although in practice this higher threshold already applies as a result of earlier Ministerial directives to the Overseas Investment Office.
A new benefit to New Zealand test for investments in sensitive land
A new “benefits test” will apply to applications received on or after 24 November for investments in sensitive land, with the key change being to amend the cumbersome “counterfactual test” that currently applies. The new counterfactual test will be a comparison of the current state of the assets, against what is likely to occur as a result of the investment.
Effectively, this will replace a “with or without” analysis, with a “before and after” analysis. The current “with or without” analysis, including the need often to have reference to a hypothetical alternative purchaser, adds significant complexity to sensitive land applications and can set a very high threshold. The new “before and after” analysis is generally expected to be an easier threshold to satisfy.
There will also be a smaller number of broader benefits categories from November, with seven broad factors rather than 21 rigid benefit categories. There will also be greater focus on how sites of importance to Māori are protected.
The seven new factors are:
- Economic benefit
- Environmental benefit
- Public access
- Protection of historic heritage
- Advancing government policy
- Oversight by New Zealanders benefit
- Consequential benefit
The benefit to New Zealand test will also apply to applications to acquire fishing quota, replacing the fishing quota national interest test.
Statutory timeframes for assessments
One of the most welcome reforms is to replace notional administrative processing timeframes with set, statutory timeframes. These will vary depending on the type of application. While they are designed to give more assurance around the time an application consent process will take, it is worth noting that these can be paused or extended. There is no recourse for an applicant if these are not met and it is yet to be seen if this will result in a material improvement to consent timeframes. The table of timeframes can be found here.
Offering back fresh or seawater areas
Formerly known as “special land” these areas include any part of the land involved in a transaction that is a marine or coastal area, a river bed, or a lake bed. The reforms change the offer back regime for such areas.
If an application for consent to buy sensitive land is made under the benefit to New Zealand or forestry pathway, the Crown must be notified if the land includes a fresh or seawater interest and will have the right to buy that interest.
These impending changes round out a marathon period of reform to overseas investment legislation, which began in 2018 with significant changes to the treatment of residential and forestry land and encompassed urgent changes ushered in by the COVID-19 pandemic in 2020. While not all changes have been welcomed, many of the changes are positive and address long-standing difficulties with the overseas investment regime.
However, there is still more potential for change as the New Zealand Treasury and other government agencies are now assessing the forestry-related amendments introduced in 2018. Treasury is aiming for public consultation on proposed policy options in late 2021, before reporting on any recommended changes to the Associate Minister of Finance in 2022.1
If you have any questions about how new overseas investment rules might affect you, please get in touch with the contacts listed, or your usual Bell Gully adviser.