Section 12 sets out what are overseas investments in sensitive land. Currently, section 12 covers 2 types, direct investments in interests in land (section 12(a)) and indirect investments (for example, buying shares in an entity that owns or controls interests in land) (section 12(b)).

Section 12(a) is amended so that, unless a lease or an interest relates to residential land, leases or other interests for a term of less than 10 years do not need consent under the principal Act. Leases or other interests in land that relate to land that is residential will continue to have a 3-year-term threshold. There have also been changes to how the term of the interest is calculated. In particular, the term of any previous interest in land held by the overseas person will count towards the total term of the lease (see new Schedule 1A).

The main change for indirect investments is reducing the number of small overseas investors that are subject to screening on the ground that the entity becomes an overseas person as a result of their acquisition. The Bill does this by changing the “tipping point” for New Zealand-incorporated and New Zealand-listed issuers. Currently, an overseas investor is subject to screening if, as a result of their investment, the entity becomes an overseas person (for example, if the new investment tips the entity over the current 25% overseas ownership threshold). The changes mean that the indirect investment will require screening on this ground only if the new tipping point described in new section 12(2) is reached. This point is never reached if the entity is widely held (ie, if no overseas person (alone or together with its associates) has a beneficial entitlement to, or a beneficial interest in, 10% or more of any class of the entity’s securities that confer control rights). Investors acquiring more than 25% will still be subject to screening on the other grounds in new section 12(1)(b).

Sections 12 (land investments) and 13 (business assets investments) are also both changed to reflect the new ownership and control threshold for all overseas persons (other than individuals) from “25% or more” to “more than 25%”.

Section 16 sets out the criteria for consent for overseas investments in sensitive land. The main changes are in respect of farm land advertising and transactions of national interest. There is otherwise no substantive change in respect of residential land or forestry land.

The current rule in the Act on farm land advertising requirements is that, if the relevant land is or includes farm land, either that farm land or the securities to which the overseas investment relates must have been offered for acquisition on the open market to persons who are not overseas persons. The procedure for this is already set out in regulations. The main changes to the Act are as follows:

• allowing regulations to set the requirements about when and how section 12 interests must be advertised (see section 61(1)(b)):

• allowing relevant Ministers to exempt from the requirement to advertise on the open market and from other requirements about how section 12 interests must be advertised (see new section 20(2)). This will allow for alternative forms of advertising, and supplement the current exemptions in section 20 from the need to advertise. Standard provisions about exemptions will apply (for example, applications can be made at any time, fees may be charged, and conditions may be imposed):

• requiring the advertising to happen before a transaction is entered into with the overseas person:

• clarifying what must be advertised (for example, if a 50 year lease may be sold to an overseas person, the farm land advertising requirements can be met by advertising a 50 year lease. Advertising the freehold interest in that property is not required).

In addition, a new criterion for consent is that, if the overseas investment in sensitive land is a transaction of national interest, the Minister has not declined consent to the transaction (see new section 20C).

Section 16A sets out the benefit to New Zealand test, which is 1 of the main criteria for consent for overseas investments in sensitive land. The main changes are as follows:

• changing the counterfactual to a simpler test (ie, Ministers must compare “before and after” the investment, rather than using the “with and without” the investment test used after the Court decision in the Crafar Farms case:

• requiring a proportionate approach (ie, taking into account whether the benefit is proportionate to the sensitivity of the land and the nature of the overseas investment transaction). This means that if, for example, a large area of very sensitive land is being acquired, the benefits are expected to be greater than if only a very small area of not very sensitive land is being acquired:

• removing current section 16A(1)(b), which requires that, if the relevant land is or includes non-urban land that, in area (either alone or together with any associated land) exceeds 5 hectares, the relevant Ministers have to determine that the benefit to New Zealand will be, or is likely to be, substantial and identifiable:

• enacting a modified benefits test for rural land with an elevated benefits threshold, by moving the current Government’s rural land directive up into the Act. That was given under section 34, which provides that the Minister can direct the regulator by a Ministerial directive letter. If the acquisition is or includes more than 5 hectares of farm land (ignoring associated land), Ministers must give certain factors high relative importance and ensure that the applicant has demonstrated, in relation to 1 or more of those factors, that the benefits of the investment are of a size or nature that represent a substantial benefit to New Zealand:

• if an overseas investment involves extraction of water for bottling, or other extraction of water in bulk for human consumption, introducing an additional factor, namely, whether the overseas investment will, or is likely to, result in a negative impact on water quality or sustainability. Any negative impact must be deducted from any benefit to New Zealand that has been determined.

There are no changes proposed to the 2 forestry pathways within the benefit test set out in section 16A. Also, there are no substantive changes proposed to section 34, which enables a Ministerial directive letter to direct the regulator about things like the relative importance of different criteria or factors in relation to particular assets.

Section 17 currently sets out some of the factors for assessing the benefit of overseas investments in sensitive land and regulation 28 of the regulations currently sets out more factors. The intention is that the new factors will be those set out in new section 17, and that no factors will be able to be set by regulations.

Section 18 sets out the criteria for overseas investments in significant business assets. A new criterion for consent is that, if the overseas investment is a transaction of national interest, the Minister has not declined consent to the transaction (see new section 20C).

Significant business assets are assets as defined in section 13 of the Act. Broadly speaking, they are securities and other assets with a value exceeding $100 million, or higher amounts in the case of investors from certain countries with which New Zealand has signed free trade agreements that confer more favourable treatment on this point as follows:

• there are higher thresholds of $537 million for Australian non-Government investors and $113 million for Australian Government investors under the Protocol on Investment to the New Zealand–Australia Closer Economic Relations Trade Agreement:

• New Zealand increased the monetary thresholds in section 13 of the Act from $100 million to $200 million for investors from other parties to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership:

• this also triggered “most favoured nation” obligations that New Zealand had under other agreements, so the $200 million threshold also applies under the following agreements:

  • the Free Trade Agreement between New Zealand and the Republic of Korea:

  • the Agreement between New Zealand and the Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu on Economic Cooperation:

  • the New Zealand–Hong Kong, China Closer Economic Partnership Agreement:

  • the Free Trade Agreement between the Government of New Zealand and the Government of the People’s Republic of China:

  • the Trans-Pacific Strategic Economic Partnership Agreement (the P4 Agreement).

New section 18A contains the new investor test, which applies for almost all overseas investments. The new section clarifies that the purpose of the test is to determine whether investors are unsuitable to own or control any sensitive New Zealand assets, by assessing whether they are likely to pose risks to New Zealand, based on factors relating to their character and capability. The main changes to the factors are—

• replacing the current requirements for good character with new factors, including factors about offences and contraventions by relevant overseas persons that are non-natural persons:

• removing the current factors about business experience and acumen:

• introducing new capability factors, such as whether the person is prohibited from being a director or manager under the Companies Act 1993 or similar Acts:

• removing the current factor about financial commitment to the overseas investment:

• introducing new factors, including to enable consideration of tax evasion, abusive tax positions, and outstanding unpaid tax of $5 million or more.

The Bill changes the nature of the investor test as follows:

• currently, certain factors disqualify an investor from meeting the test (for example, they cannot meet the test if they have been convicted of an offence for which they were sentenced to imprisonment for a term of 5 years or more). The new test provides that the investor test can be met in either of 2 ways, namely, if none of the factors are established, or if Ministers are satisfied that any factor that is established does not make the person unsuitable to own or control any sensitive New Zealand assets:

• currently, in assessing good character, Ministers are required to take into account any other matter that reflects adversely on the person’s fitness to have the particular overseas investment. Under the new test, Ministers will not be able to consider any other matter outside of those listed in the Act.

The Bill also changes the focus of the investor test as follows:

• currently, some of the factors in the test assess the investor in terms of the particular overseas investment in sensitive New Zealand assets. The new test will assess whether the investor is unsuitable for any overseas investment in sensitive New Zealand assets (including any that the investor may make in the future):

• currently, some New Zealanders are subject to the test (for example, if they are identified as the person making the overseas investment as an associate of an overseas person or as an individual with control of the relevant overseas person). The new test will exclude New Zealanders from its scope.

See also new section 29A for increased flexibility about the investor test, for example for repeat investors. Currently, the investor test is a transaction-based test, and is required to be satisfied afresh for each transaction. The new provisions will mean that investors who have already passed the investor test will not need to re-satisfy the test in full each subsequent time that they propose to make another investment. They would only need to declare any changes relevant to the investor test that have occurred since they last passed the test.

New section 20 relates to the exemptions from the criterion in current section 16(1)(f) that requires farm land to be offered for acquisition on the open market to persons who are not overseas persons.

New section 20C allows the Minister to decline consent to a transaction of national interest if the Minster considers that the transaction is contrary to New Zealand’s national interest. Transactions of national interest are transactions that already require consent under the Act and that result in–

• an investment by a non-New Zealand government investor; or

• an investment in a strategically important business; or

• any other investment that the Minister considers could be contrary to New Zealand’s national interest, but only if the Minister has notified the applicant that the transaction is being considered as a transaction of national interest.

A decision as to whether a transaction of national interest is contrary to New Zealand’s national interest cannot be delegated to the regulator (see new section 32(2)). In addition, the person who makes a decision in relation to an application for consent cannot also make a decision about whether the transaction is contrary to New Zealand’s national interest.

Strategically important businesses are businesses operating in a range of areas that are considered to be strategically important, including businesses involved in military or dual-use technology, ports or airports, electricity, water, telecommunications, and financial market infrastructure (see the new definition of SIB, or strategically important business, in section 6(1)). For the most part, regulations will need to be made in order for a business to be considered a strategically important business under the Act.

New sections 20D to 20F deal with critical direct suppliers. An investment in a critical direct supplier is either a transaction of national interest (if the transaction already required consent under the Act) or a call-in transaction (if the transaction does not otherwise require consent under the Act). A list of critical direct suppliers will be published so that potential investors will be able to identify whether the proposed transaction will be a transaction of national interest or a call-in transaction. New sections 20E and 20F deal with what happens if a critical direct supplier’s name is not published on that list.

New section 25C imposes an automatic condition on any consent relating to a transaction of national interest, requiring each consent holder not to act with a purpose or an intention of adversely affecting national security or public order.

New section 25D imposes an automatic condition on any consent involving a fresh or seawater area, requiring compliance with the provisions of new Schedule 5 (which provides for the Crown acquisition of fresh or seawater areas, and which replaces the special land provisions in the principal Act).

New section 29A provides increased flexibility in relation to the investor test and for repeat investors. People will be able to apply at any time for an assessment of whether they meet the test (not just when they apply for consent for a particular investment). Also, passing the test will count for later investments if either there has been no change in the extent to which the investor test factors are established or any change in the extent to which an investor test factor is established does not make the person unsuitable to own or control any sensitive New Zealand assets. However, if the national interest test was failed for the most recent investment where the investor met the investor test, for reasons connected to the investor, then the investor must apply again for a new assessment of whether they meet the test for their next investment.

New section 32(2) provides that certain decisions relating to transactions of national interest and call-in transactions cannot be delegated to the regulator.

New section 37B empowers regulations to be made setting time frames for the exercise of functions and powers, performance of duties, and provision of services, under the Act and requiring information to be included in the annual report of the regulator about the extent to which those time frames are met.

New section 38A provides for overseas persons who make, or apply to make, an overseas investment in sensitive New Zealand assets to be required to provide information that the Commissioner of Inland Revenue considers necessary or relevant for tax purposes. The intention is that regulations will set out things like what information or other evidence or documents must be provided.

Section 41 extends the existing information-gathering powers so that they will apply for the purpose of investigating whether a transaction is a call-in transaction and whether a transaction gives rise to, or is likely to give rise to, a significant risk to national security or public order. (See generally new Part 3 for provisions relating to call-in transactions).

New sections 46A to 46F provide for enforceable undertakings.

Section 48 provides that the court may order a person in breach of the Act, or involved in a breach, to pay a civil pecuniary penalty. Currently, the maximum penalty that may be awarded is the higher of $300,000 or 3 times the amount of any quantifiable gain or the cost of remedying the breach of condition or the loss suffered by a person in relation to a breach of condition. The Bill proposes to change the $300,000 cap to $500,000 in the case of an individual or $10 million in any other case. Amendments have also been proposed to section 48 to allow for maximum penalties to be set if a prohibition order or a direction order is breached (see new sections 88 to 92 in relation to those orders).

New sections 51AAA to 51AAE relate to injunctions, for the purpose of enforcing the provisions of the Act.

Section 61 sets out regulation-making powers. The main changes here are—

• widening the power to make regulations prescribing when and how section 12 interests in farm land must be advertised for acquisition on the open market:

• removing the power to make regulations setting out additional factors for assessing the benefit of overseas investments in sensitive land.

The regulation making powers relating to the offer of foreshore, seabed, riverbed, or lakebed have been moved to new Schedule 5 (which provides for the acquisition of fresh or seawater areas by the Crown).

Section 61B sets out the purpose of exemption-making powers. The main changes are—

• adding undue cost to the list of purposes in section 61B(a). Currently, a purpose of the exemption-making powers is to provide flexibility where compliance with the Act is impractical, inefficient, or unduly burdensome but where the purpose of the Act can still be substantially achieved through terms and conditions of the exemption:

• replacing the reference in the above to the purpose of the Act being able to be substantially achieved through terms and conditions of the exemption with a reference to taking into account the sensitivity of the sensitive assets and the nature of the overseas investment transaction:

• adding 2 new purposes for exemptions. The first new purpose is exempting persons, transactions, rights, interests, or assets that the Minister considers to be fundamentally New Zealand owned or controlled or to have a strong connection to New Zealand. The second new purpose is exempting persons, transactions, rights, interests, or assets that the Minister considers to be necessary or desirable to support the issuance or management of residential mortgage-backed securities complying with a standard created or endorsed by the Reserve Bank of New Zealand.

New section 84 gives the Minister the power to review call-in transactions to determine if the transaction gives rise, or may give rise, to a significant risk to national security or public order. A call-in transaction is a transaction that is an overseas investment in SIB assets that does not otherwise require consent under the Act (see new section 82).

New sections 85 to 87 deal with the notification of call-in transactions. Transactions involving military or dual-use technology, or a critical direct supplier, must be notified to the regulator before they are given effect to. Failure to do so is a contravention of the Act. Other transactions may, but do not have to, be notified to the regulator.

New subpart 2 provides for 4 types of NSPO management actions, as follows:

• a direction order, which allows a call-in transaction to proceed so long as the relevant overseas person complies with the automatic condition and any other conditions imposed in the order (see new sections 88 to 90):

• a prohibition order, which prohibits a call-in transaction from being given effect to (see new section 92):

• a disposal order, which can be made in relation to an investment given effect to under a call-in transaction or a transaction of national interest. A disposal order requires the relevant overseas person to dispose of the sensitive assets acquired under the transaction. (See new section 93):

• a recommendation that a person be put into statutory management in accordance with new sections 94 to 111. The main purpose of a statutory management is to manage national security and public order risks, including by removing the overseas person’s access to or control over sensitive assets.

New subpart 3 applies to civil court proceedings relating to the administration or enforcement of the Act. It sets out the manner in which classified security information may be used in those court proceedings.

This subpart is substantially the same as subpart 8 of Part 4 of the Telecommunications (Interception Capability and Security) Act 2013, except that information held by any law enforcement or regulatory agency may be classified security information if certified by the head of the agency or the Attorney-General (see new section 114).

New subpart 4 contains various miscellaneous provisions relating to the national security and public order risks management regime.

The main provision in this subpart is new section 126, which provides that various agencies can share information (including personal information) between them if they consider it necessary or desirable for the purpose of managing national security and public order risks associated with transactions by overseas persons.

See Schedule 1AA for new transitional, savings, and related provisions.

Table 2 of Schedule 1, which provides for land to be sensitive if it adjoins the types of land listed in that table, has been amended. The amendments generally reduce the scope of sensitive adjoining land (for example, see row 5 of Table 2 which amends the types of regional parks that will be sensitive adjoining land), or refocus a type of sensitive adjoining land onto land that is significant to Māori (for example, see row 10 of Table 2). There will no longer be a list of reserves, public parks, and other sensitive areas under section 37 of the Act.

There is otherwise no substantive change to Schedule 1.

Clause 5 is replaced with no change in substance. New clause 5 is an exemption that applies to premises used, or intended to be used, in the course of business principally for providing temporary lodging to the public. To try to help readers, the current clause 5 uses the term “hotel” for these premises (defined as above) and the term “hotel company” for people operating and developing these premises. It is thought that the use of these terms risks creating an implication that the narrower ordinary meaning of “hotel” is intended. The new clause therefore instead uses the terms TLtP premises and TLtP participant, to cover all premises used, or intended to be used, in the course of business principally for providing temporary lodging to the public.

The principal Act requires an overseas person to offer special land to the Crown, and the provisions of that offer are dealt with in regulations. The main changes here are that—

• the special land (renamed fresh or seawater areas) must be acquired by the Crown unless the Crown declines to acquire the areas in accordance with the provisions set out in the schedule (see clauses 4 and 5 of new Schedule 5):

• the Crown’s right to acquire only applies if the overseas person is acquiring a freehold interest or a leasehold interest in the land. The Crown’s right to acquire does not apply in the case of acquisition of other estates or interests in land, or of rights or interests in securities:

• the Crown’s right to acquire only applies if the criteria satisfied in a consent application included the benefit to New Zealand test:

• unless the Crown declines, the acquisition must be completed during the term of the water areas acquisition notice that will be registered against the relevant record of title relating to the fresh or seawater area.

Regulations will still set out the details of the acquisition, including standard terms of acquisition that will apply unless the Crown and overseas person agree otherwise. The provisions of new Schedule 5 will bind the overseas person and any of their associates. If a water areas acquisition notice is registered on the record of title relating to the fresh or seawater areas, the provisions of new Schedule 5 will also bind any subsequent owners of the fresh or seawater areas. For land held off-register, a water areas covenant will apply.