Investor faces $65,000 bill over residential property lease
Wednesday, 28 April 2021
The Auckland High Court has ordered an overseas investor to pay a penalty of $49,000 and $15,000 in costs for failing to get consent from the Overseas Investment Office (OIO) before entering a long-term lease.
This is the third court ordered penalty decision for breaches of the Overseas Investment Act in recent weeks, and the first court case involving an overseas investor leasing land in New Zealand.
Justice Rebecca Edwards said “breaches involving leases should not generally be regarded as less serious than those involving the purchase of freehold land”.
In 2014, the investor, Bin Zhao, and his wife were visiting New Zealand and staying with the vendors of 20.5 hectares of land in Coatesville.
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They agreed to buy the property for $6 million.
But when Zhao returned to New Zealand to complete the purchase he was informed he could not, because he did not meet residency requirements.
The next month, the vendors and Zhao entered into an agreement for the sale, subject to OIO approval. But the application for consent was not made and the purchase was not settled.
On the same date of the purchase agreement, the investor also entered a 10-year lease over the land for $1 per year with a 10-year right of renewal. The vendor’s solicitor prepared the lease, and the investor did not seek independent legal advice.
Edwards said the deal effectively gave Zhao control over the land before and after the intended settlement of the purchase. Overseas investors must obtain consent if they plan to lease residential land for more than three years,
”This structure also suggests there was an element of premeditation in trying to circumvent the controls imposed by the Act. There is no dispute that Zhao was aware that he did not meet the residency requirements for purchase of the land, yet he entered into arrangements which provided for the acquisition of a long-term interest in the land without the need for the regulator’s consent.”
But Edwards said Zhao had limited proficiency in English and relied on the vendor’s lawyer’s advice.
OIO group manager Anna Wilson-Farrell said: “While the investor may not have purchased the land, he did obtain a significant long-term interest in the land and he should have applied for consent.
“Failing to seek consent to enter into a long-term lease should not be considered a low-level breach, as this decision has shown.
“We always recommend that overseas investors get specialist independent advice on the Overseas Investment Act before they enter into any agreements.”
Zhao is now a New Zealand permanent resident and intends to settle the purchase of the land.