Commercial Property

17 Jul 2010

Guide to Seeking Consent for Sensitive Land

While travelling in New Zealand, I stayed several nights at one tourist lodge because I enjoyed it so much. Apparently, the owners have been trying to sell for some time and I am now thinking of buying it and running the business myself. It is in a fantastic location with stunning views of a national park. The lodge itself is small but there is plenty of land for development. I think the price the owners are asking is good but they mentioned something about me needing overseas consent because this land is in a rural area (although I think it is quite close to the town). Is this correct?

We would need further information on the property to be conclusive. However, in general, if this property is "sensitive land" under the Overseas Investment Act 2005 (Act), then you will need to apply to the New Zealand Overseas Investment Office (OIO) for consent to buy it. For consent, you will need to satisfy a number of criteria including:

• the transaction will, or is likely to, benefit New Zealand, or alternatively
• the relevant overseas person intends to reside in New Zealand indefinitely.

OIO consent is required if you are an overseas person (not a New Zealand citizen nor an ordinary resident in New Zealand), and if you are buying "sensitive land". There are many different types of "sensitive land" but the most common types are: a) non-urban land over five hectares; and b) land over 0.4 hectares that adjoins certain usual land such as a lake, a regional park, a reserve or a historic place (we will refer to this as "Special Land" in this article).

Under the Act, "non-urban land" is defined as a) farm land; and b) any land other than land that is both (i) in an urban area; and (ii) used for commercial, industrial, or residential purposes.

You should first check the total area of the property and whether it adjoins any Special Land. If the property does not adjoin any Special Land and is less than five hectares, then OIO consent may not be required.

If the property is larger than five hectares, then this would depend on whether it is in an urban area or not. A property is not farm land if is not 'used exclusively or principally for agricultural, horticultural, or pastoral purposes, or for the keeping of bees, poultry, or livestock'. If the main use of the property is as a tourist accommodation, then it is used for commercial purposes.

Whether or not a property is considered to be in an urban area will depend on the location, size and character of the land. District plans and aerial photographs are considered the most effective tools in assessing this question. As a suggested guide, urban areas are characterised by high population density, small land holdings (regularly less than 0.4 ha), and zoning that is compatible with high density commercial, industrial and/or residential activity. Non-urban areas are characterised by open space, paddocks, pastures or forests and large land holdings (regularly in excess of two hectares). The zoning may be compatible with agricultural, horticultural or viticultural activities.

Therefore you would need to check the council zoning and what activities are permitted for this property and also the details of neighbouring properties. Other indicators include whether the property has full services (ie. sewerage, water, electricity); close proximity to schools, supermarkets, libraries or the town centre; existence of public transport, mobile telephone coverage, and whether the neighbouring properties are small and not used for any type of farming.

Determining if consent is required, and applying for consent requires significant legal and land expertise. We recommend that you first look at the OIO website as this provides useful information and guidelines. We strongly recommend that you consult with a lawyer to ensure compliance and to make any offer conditional on obtaining OIO consent, if consent is required. The penalties under the Act can be hefty and individuals may become liable to criminal offences if convicted.

Finally, we understand that the Act is currently being reviewed, but the details of the proposed changes are not yet known.

This question is answered by Senior Associate Daniel Kelleher and Law Graduate Niven Prasad.