New Zealand overseas investment: Large penalties for illegal land purchase

11 July 2019

As the Overseas Investment Office (OIO) continues to increase its enforcement activities, a recent High Court case acts as a timely reminder of the importance to comply with the Overseas Investment Act (OIA).

The overseas owners of two illegally purchased rural properties in New Zealand have been ordered to sell them and to pay the Government any gains made on the sale. They have also been fined almost $3m and have agreed to pay $10,000 each toward the OIO's monitoring and enforcement costs.

The offshore investors should have applied to the Overseas Investment Office for consent because both purchases involved rural land of more than 5 hectares so came within the requirements of New Zealand’s OIA.

To obtain consent under the OIA, the overseas investor must be able to show that the benefits to New Zealand arising from the proposed purchase are “substantial and identifiable”.

Both properties were at Warkworth, north of Auckland.

  • 18 Sandspit Road was bought in January 2014 for $4.48m. After the OIO investigation, it was sold for $10.1m. After deducting expenses, the capital gain was $2.335m.
  • Kourawhero Lodge was bought in July 2012 for $2.55m and is due to be settled on 29 September this year for $3.25m. No gain will be made on the sale after expenses are deducted.

The OIA allows a maximum penalty of $300,000 or three times the quantifiable gain made on the sale of the property, whichever is the higher.

Under a settlement agreement between the OIO and the offshore investors, the parties recommended that the High Court imposes penalties of $307,500 each for the two investors, and $2,335,256 on their company. Oral judgment from the High Court was delivered late last week, with the written judgment to follow.

Please let us know if you would like a copy of the settlement agreement, a more detailed summary the High Court decision (once it is released), or to talk through any of the above with one of our experts.

Our thanks to Liam Stoneley for drafting this client alert.

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