New class exemptions to the Overseas Investment Act 2005 (Act) have recently been introduced and came into force on 1 February 2017.The exemptions will only apply to transactions that occur after 1 February 2017.
The new exemptions add to the list of exemptions already contained in the Overseas Investment Regulations 2005 (Regulations). In particular Regulation 33 contains a list of 17 classes of transactions where the requirement for Overseas Investment Office (OIO) consent does not apply.
The full text of the new exemptions is set out in the Overseas Investment Amendment Regulations (No2) 2016. The new exemptions are summarised below.
An exemption has been introduced for overseas custodians that acquire certain rights or interests in property (securities or rights or interests in securities or property) on the instructions of a customer and hold those rights and interests on trust for, or on behalf of, another person. If the transaction would otherwise be subject to the Act (being an investment in sensitive land, significant business assets or fishing quota), the exemption allows the custodian to acquire those rights or interests without obtaining OIO consent where:
- The custodian acquires no beneficial interest in or entitlement to the property;
- The custodian acts on the decisions and instructions of the customer, and makes no decisions in respect of the property; and
- The custodian is a person in the business of obtaining and holding property for other people and is acting in the ordinary course of that business.
This exemption is consistent with recent exemptions that have been granted to specified custodian companies (FNZ Custodians Ltd1 and Custodial Services Ltd2).
The exemption does allow the custodian to acquire an interest in the property by way of a security arrangement that secures the customer's obligation to pay fees for the custodial services.
It is important to note that the exemption only applies to acquisition of property by the custodian. If the person ultimately entitled to hold or call for the right to hold the right or interest in the property is an overseas person, the transaction will still require OIO approval. In that scenario, it will be the ultimate investor, not the custodian, which is required to obtain the OIO consent.
An additional new exemption applies to the body corporates in which overseas custodial companies hold securities. Generally, if at least 25% of any class of securities in a body corporate are held by an overseas person, the body corporate will also be an "overseas person" for the purposes of the Act. The new exemption provides that a body corporate will not be an "overseas person" under this definition where:
- Some of the securities of the body corporate are held by a custodian; and
- The body corporate would not be an overseas person if those securities were held by the ultimate investor rather than by the custodian.
Essentially this exemption allows the body corporate to "look through" the shareholding to the ultimate beneficial owner. It only applies in respect of custodians that are in the business of obtaining and holding property for other people and that are acting in the ordinary course of that business.
"Re-grants" of existing interests
The requirement to obtain OIO consent applies equally to the acquisition of freehold interests and other, equitable interests, such as lease or security interests, that exceed three years (including renewals). Previously, an overseas person wishing to extend the term of a leasehold interest on expiry of the original term (including all renewals), would need to apply for a new OIO consent. A new exemption allows an interest in land to be "re-granted" on expiry of the original term without OIO consent if the transaction meets the following requirements:
- The new interest commences within 3 months of expiry of the original interest;
- The holder of the new interest and the original interest must be the same person;
- The nature of the interest must be the same;
- The sensitive land must be the same as, or a portion of, the sensitive land that was the subject of the original interest;
- The term of the new interest must be the same as or shorter than the term of the original interest (including renewals);
- The terms and conditions of the new interest substantially reflect the terms and conditions of the original interest (changes such as changes to monetary terms and amendments to reflect legislative change are permitted);
- OIO consent was obtained for the acquisition of the original interest and the overseas person is in compliance with the conditions of the OIO consent;
- The term of the new interest expires within 20 years of the date that the original interest in land was acquired; and
- The activity to be conducted from the land is the same or substantially the same as the activity conducted under the original interest.
An overseas person is required to notify the OIO if it is relying on this exemption, and provide specified information to the OIO. The conditions of the previous OIO consent must also continue to be complied with.
This exemption is intended to reduce regulatory compliance in large overseas merger and acquistion transactions that have sensitive New Zealand land aspects. The exemption applies where:
- The transaction involves the sale of land or securities from one overseas person to another;
- The transaction involves a particular type of sensitive land (essentially, if land is non-urban, exceeds 5 hectares or includes reserve/conservation land, consent will still be required, but if it is a small area of land that is sensitive only because of the features of adjoining land, it will fall within the exemption);
- The relevant interest has previously been consented under the OIO regime (for example when the interest was acquired by the current owner); and
- The activity to be conducted from the relevant land is substantially similar to the activity conducted before the transaction.
An overseas person is required to notify the OIO if it is relying on this exemption, and provide specified information to the OIO. The overseas person must also agree to comply with any continuing conditions of the previous OIO consent.
Public Works Act 1981
This exemption applies where an overseas person acquires an interest in land as a result of certain provisions in the Public Works Act 1981, provided that the overseas person has an existing interest in adjoining land (or land that is separated from the new land only by a public road). For some types of sensitive land types, the exemption only applies if the relevant land is below a certain size.
1 Overseas Investment Office decision 201610050, 29 March 2016.
2 Overseas Investment Office decision 201610046, 24 March 2016.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.