Farm land must be offered for acquisition on the open market before consent can be granted to an overseas investment in sensitive land.
This section contains information about requirements relating to farm land and farm land securities under the Overseas Investment Act 2005 (“Act”) and Overseas Investment Regulations 2005 (“Regulations”); and information you must include in your application for consent. If you still have questions after reading this material, please contact us.
Key Points about Farm Land
- Farm land or farm land securities must generally be advertised on the open market in the specific manner required by the Regulations. Failure to comply may require the land or securities to be re-advertised – resulting in costly delays.
- The Minister of Finance has identified certain factors that are of high relative importance when determining whether an overseas investment in large areas of farm land will, or is likely to, benefit New Zealand and whether that benefit will, or is likely to be, substantial and identifiable.
- Failing to identify that land is farm land and not advertising
- Failing to advertise within the correct time period or for the correct time period
- Agreements for sale and purchase restricting the ability of the land owner to accept alternative offers during the advertising period
- Not providing adequate farm land information in the application
Section 6 of the Overseas Investment Act 2005 defines farm land as land that is used exclusively or principally for agricultural, horticultural or pastoral purposes, or for the keeping of bees, poultry or livestock.
- It includes a wide range of land uses - from common sheep and beef cattle farms for example, through to nuts, fruit and flowers.
- “Agricultural purposes” includes the cultivation of soil for the production of food products and other useful products.
- “Horticultural purposes” includes growing plants or trees in gardens, greenhouses, shadehouses, orchards, vineyards or hydroponically.
- “Pastoral purposes” includes the grazing of livestock.
Land used principally or exclusively for forestry or silvicultural purposes, or aquaculture is not farm land.
The exclusive or principal use of land is determined at the time the application is made.
How the land might be used in the future (e.g. urban development) does not alter a property’s current status as farm land. The question is: what would a reasonable person consider to be the sole or principal purpose for which the land is used?
You should take a range of considerations into account to determine the principal use of the land, including the following:
- the size of the land;
- the proportion of the land used for farming, rather than another activity;
- common indicators – whether the land has paddocks, farming infrastructure, a fertilizer history;
- the history of the land – a short period when the land has not been used as farm land may not change its status if it has always been farm land previously; and
- whether farming is the main generator of the income on the property; although land does not cease to be farm land because the farming undertaken on the property is not economically viable. The property does not need to be an economic farming unit; either by itself or together with other units.
A lifestyle block is an example of land where the decision depends on the particular facts.
You should advertise if you are unsure whether or not land is farm land.
Section 16(1)(f) of the Act requires that sensitive land which is ‘farm land’ be advertised on the open market unless exempted under section 20. The relevant Ministers must decline to grant consent if not satisfied that all of the criteria in section 16 are met (section 14 of the Act).
If farm land has not been advertised correctly, the application may not be accepted for assessment, or the OIO may require the farm land to be re-advertised.
The owner must offer farm land or farm land securities for acquisition on the open market in accordance with the procedure and minimum standards for advertising set out in regulations 4 to 11 and schedule 1 of the Regulations. Note the definition of owner includes any person who is authorised in writing to act as the owner’s agent. Therefore the farm land offer requirements will also apply to any real estate agent appointed to sell a property.
The purpose of regulations 5 to 10 is to ensure that persons who are not overseas persons but who wish to acquire the farm land or farm land securities have reasonable notice that they are available for acquisition. The regulations do not require the vendor to accept any particular offer.
Regulation 5 states that, for the purposes of section 16(1)(f) of the Act farm land or farm land securities must be:
- offered for acquisition on the open market, to persons who are not overseas persons, in accordance with regulations 6 to 8
- available on the open market for the minimum period required by regulation 9, and
- advertised within the period required by regulation 10.
The advertisement must meet the content, form and time requirements in regulations 7-10. The owner of the land, or any person authorised in writing by the owner to act as their agent, should take particular care to adhere to these requirements. In particular, an advertisement must contain a statement that says that the farm land or the farm land securities are available for acquisition and offers are sought from potential purchasers. While advertisements calling for tenders can meet these requirements, advertisements inviting “expressions of interest” will not meet the statutory requirements.
In accordance with regulations 9 and 10, the owner must ensure that the farm land or farm securities are available for acquisition on the open market for at least 20 working days after an advertisement is first placed and be published within the period of 12 months that precedes the earlier of the following dates:
- the date on which an application for consent to the relevant overseas investment transaction is made; or
- the date on which the relevant overseas investment transaction that requires consent (or will require consent before it is given effect) is given effect to.
If the advertisement has stated or implied that offers will be accepted for a period longer than 20 working days, the relevant advertising period will be that longer period.
The advertising period under regulation 9 must have taken place during the relevant 12 month period under regulation 10. Non-compliance with these regulations may mean that an application that has been filed will have to be withdrawn and resubmitted once the appropriate advertising has been carried out.
The Applicant must demonstrate:
- that the farm land or farm land securities were available for acquisition on the open market for at least 20 working days during the relevant advertising period (identifying the last date upon which offers could be received): See regulation 9. The meaning of ‘working days’ is defined in section 6 of the Act; and
- which of the two possible advertising periods was the earlier to determine when the relevant 12 month period began – in most cases, the relevant date will be the date of the application for consent: See regulation 10.
The farm land or farm land securities must be genuinely available for purchase for at least 20 working days after the advertisement is first placed.
A transaction may include land that is farm land, and land that is not farm land. In these cases, only the farm land must be advertised.
The regulations do not require the vendor to accept any particular offer (New Zealand or otherwise) but they must have an ability to accept offers from New Zealanders for the minimum 20 working day period. The owner may accept an offer for the farm land or the farm land securities before the end of the advertising period from a New Zealander.
If the farm land or farm land securities are advertised after the owner and an overseas buyer have entered into an agreement for sale and purchase, the owner must be able to terminate the agreement and accept any alternative offer presented to it i.e. the owner must be in a position to accept an offer from a non-overseas person. An agreement must not require the owner to allow the overseas person to match or better any alternative offer presented, as the land or securities would not then be available for acquisition on the open market by New Zealanders.
Assessment of Advertising
The OIO makes an overall assessment of whether a hypothetical person looking to purchase property in the district in which the land is located would have reasonable notice that the property was for sale.
The OIO considers the prominence, content and placement of an advertisement, the particular circumstances of the property and sale, and advertisements for similar properties.
While there is no obligation to use more than one form of advertising, there may be circumstances when an applicant will not be able establish that the land or securities were available for acquisition on the open market if only one form of advertising is used.
There are two types of exemptions from the farm land offer criterion in section 16(1)(f): exemptions granted by reason of the circumstances relating to the particular overseas investment (section 20(a) of the Act), and exemptions under a notice published in the New Zealand Gazette (section 20(b) of the Act).
In December 2016, the relevant Ministers issued a notice specifying classes of persons or transactions that are exempted from the farm land offer criterion for certain transactions, for example:
- farm land securities quoted on a securities market;
- the acquisition of farm land or farm land securities by an overseas person from a family member.
Read the Notice of exemptions from farm land offer criteria pursuant to section 20 of the Overseas Investment Act 2005 (published in the New Zealand Gazette, 118, 15 December 2016).
Section 20(a) Exemptions
If there is no applicable exemption set out in the Gazette Notice, consideration needs to be given to applying under section 20(a) for an exemption from the farm land offer criterion by reason of the circumstances relating to the particular overseas investment, interest in land, or rights and interests in securities.
Exemptions tend only to be granted in relatively limited circumstances (for example, boundary adjustments between the existing parties, or where a property is land locked).
An application for exemption from farm land advertising is included in the application for consent to acquire the farm land and is not considered separately.
The Minister of Finance has issued a Directive Letter about particular factors that are of high relative importance when assessing the benefits of overseas investments in ‘large’ areas of farm land (refer paragraphs 4 to 12 inclusive of the Directive Letter). Specifically, the high relative importance factors are:
- the ‘economic factors’ in section 17(2)(a) of the Act (the creation/retention of jobs, new technology/business skills, increased export receipts, added market competition, greater efficiency/productivity, enhanced domestic services, additional investment for development and increased processing of primary products);
- the ‘economic interests’ factor in regulation 28(i) of the Regulations; and
- the ‘oversight and participation by New Zealanders’ factor in regulation 28(j) of the Regulations.
What is a ‘large area of farm land’?
As an indicative guide, an overseas investment in farm land would be considered 'large' if it were to result in the relevant overseas person owning or controlling an area of land that is more than ten times the average farm size for the relevant farm type (“Large Farm Threshold”). The OIO has published a table showing the average size of various farm types based on Statistics New Zealand data.
The acquisition of ‘large’ areas of farm land could occur in one transaction or over a number of transactions over time.
The calculation of whether the investment in farm land is 'large' is made in net, rather than gross terms, to exclude any New Zealand portion of ownership or control. For example, if land has an area of 100 hectares, but the overseas person is 50% New Zealand owned, then only 50 hectares of the land should be taken into account.
Where the relevant land is used for a number of purposes, the size is assessed against the farm category most relevant to the principal proposed use of the land, and taking into account existing land holdings used for similar purposes.
When the proposed use of land is farm land, Applicants must:
- provide a list of all farm land of any type owned or controlled by the relevant overseas person or any associates;
- state whether the proposed investment constitutes the acquisition of a ‘large’ area of farm land;
- set out their calculations and conclusions, including:
- providing the raw data used;
- identifying any portion of farm land that has been excluded because of New Zealand ownership or control; and
- explaining any assumptions made.
If the Applicant does not provide sufficient information, the OIO may treat the land proposed to be acquired for farming as “large”.
If the application relates to the acquisition of non-urban land that is not farm land, explain why the land is not farm land.
- Demonstrate which of the two possible advertising periods was the earlier for the purposes of Regulation 10 and state the date when the relevant 12 month period began.
- Demonstrate that the land was advertised for at least 20 working days in accordance with Regulation 9 during the relevant advertising period (clearly identifying the last date upon which offers could be received).
- Provide the names of real estate agencies acting.
- Include copies of actual advertising undertaken (showing dates).
- Include an application for exemption from farm land advertising (if relevant).
- List all farm land of any type owned or controlled by the relevant overseas person or any associates;
- State whether the proposed investment constitutes the acquisition of a ‘large’ area of land to be used as farm land;
- Provide ‘large’ farm calculations including:
- raw data;
- NZ owned/controlled land excluded;
- assumptions; and