Selling off the farm to an overseas buyer

Each week, national law firm Simpson Grierson answers commercial property questions which can be emailed and headed "property problems". This week's question is answered by senior associate Daniel Kelleher and law graduate, Niven Prasad who can be contacted at daniel.kelleher@simpsongrierson.com and niven.prasad@simpsongrierson.com

Q. I own a dairy farm and have an overseas acquaintance who is looking to purchase my farm in New Zealand. The farm is about 40ha of rural land used for grazing cattle. There have been some stories in the press recently about the need to comply with the Overseas Investment Act when selling farms. I have already entered into a sale and purchase agreement for the property which is not conditional on Overseas Investment Office (OIO) consent. What are the special requirements for OIO consent for farm land and can I still comply with them?

A. You are correct that the Overseas Investment Act 2005 has special requirements related to "sensitive land" that is or includes farm land. You can still retrospectively comply with the requirements by varying your agreement and following the special advertising requirements for farm land or you could apply for an exemption from the special advertising requirements.

Before varying your agreement and entering into the advertising procedures, you should make sure that your land is within the "farm land" definition in the act which is land used exclusively or principally for agricultural, horticultural, or pastoral purposes, or for the keeping of bees, poultry, or livestock. Be aware that land used for forestry purposes is not farm land. Also, if the parcel of land you are selling is only partly farm land, only the farm land portion must be advertised.

Given this "sensitive land" status, the act requires that farm land must be advertised for sale to persons who are not overseas persons on the open market before it may be sold to an overseas person. We assume that your acquaintance is an "overseas person" under the act.

As you have already entered into an agreement for sale and purchase of the land, you will need to show the OIO a formal written variation to the agreement and you must be able to terminate the agreement and accept an alternative offer on equal or more favourable terms from a purchaser who is not an overseas person.

The Overseas Investment Regulations 2005 set out the minimum standards and procedures for advertising farm land to the open market. The farm land must be available for acquisition on the market for at least 20 working days. The form of advertisement can be internet, newspapers, notices or signs, placards or a real estate sales publication. While there is no obligation to use more than one form of advertising, you should look to advertise through multiple forms to avoid any implication that the land is not genuinely available.

Your advertisement must contain a general description of the land being sold, state that the farm land is available for acquisition and state that offers are sought from potential purchasers. Naturally, the regulations also require the contact details of the owner to be stated. The OIO will then require evidence of your advertisements. You can give the OIO copies of advertisements, brochures or booklets to show this.

Overall, the emphasis is on reasonable notice to the market. The OIO will consider this by looking at the prominence, content and placement of any advertisements. The OIO also looks at advertisements for similar properties so it may pay for you to have a look at similar advertisements as a guide yourself. You may need to re-advertise the property if the advertisement does not meet the advertising requirements. You therefore need to be sure that you have fulfilled those requirements to avoid further delay.

The regulations do not require you as the vendor to accept any offers made to you during, before or after the period of advertisement. Moreover, you can accept an offer from a person who is not an overseas person before the advertisement period expires.

Exemptions from the advertising requirements are only granted by the OIO in exceptional circumstances such as landlocked land. Given the fact-specific nature of exemptions, a more thorough review of your circumstances should be undertaken before applying for an exemption. The application for an exemption would be included in the application for consent to acquire the farm land.

The information contained on this page is intended to provide general information in summary form current at the time of printing. The contents do not constitute legal advice and should not be relied on as such. Specialist advice should be sought in particular matters.