Following its announcement in February 2022, the Government has now tabled draft amendments to the Overseas Investment Act 2005 (Act) to restrict the application of the Act’s “special forestry test”.  The changes will mean that the special forestry test, which is a more permissive test than the general “benefit to New Zealand test”, can only be used in future acquisition of existing production forests.  

Overseas investors looking to acquire land for forestry conversion and permanent carbon forests will, once the Bill is passed, need to apply under the general benefit test.

What is the status quo?

Under the Act, overseas persons seeking to invest in sensitive land in New Zealand (which includes most forestry land) must meet certain criteria, including demonstrating that their investment will benefit New Zealand.  The Act provides a standard benefit to New Zealand test, which requires an applicant to show the creation of benefits to New Zealand as compared to the existing state of affairs at the time of the application or transaction.  The benefit to New Zealand test includes a modified lens where farmland is concerned, which sets a higher threshold.

The Act also provides a special forestry test: this test is simpler and more permissive than the benefit to New Zealand test.  It applies to the acquisition of land for forestry activities, namely maintaining, harvesting, or establishing a crop of trees, and requires applicants to demonstrate a commitment to harvest and replant and to continue certain existing arrangements.  To satisfy this test an applicant does not need to show any other specific benefits or comparative counterfactual analysis.

What’s changing?

The Bill will limit the special forestry test to applications for the acquisition of land that is already being used exclusively (or almost exclusively) for production forestry.  It will no longer be available to acquire land for forestry conversions, or for the acquisition or establishment of permanent carbon forests.  Those applications will be considered under the standard benefit to New Zealand test.  However, the higher threshold that applies under the modified test for farmland will not apply provided the applicant can demonstrate the land will be used exclusively (or almost exclusively) for production forestry, with a commitment to harvesting and replanting.

In addition to this fundamental change, the Bill helpfully makes some additional clarifications and tidy-ups, including:

• The “modified benefit test for forestry activities” has been removed (having been rendered largely redundant since changes to the standard benefit to New Zealand test which came into effect in November 2021); and
• Restrictions on the use of residential dwellings located on forestry land are loosened.

When will the change apply?

The Bill awaits its first reading in the House of Representatives but is expected to progress through the legislative process quickly.  Once enacted, the changes will apply except in the case of:

• any application for consent (including an application for a standing consent) received by the regulator before enactment;
• any transaction entered into before enactment; and
• any transaction given effect to in reliance on a standing consent if the standing consent was received and/or granted before enactment.

If you have any questions about the Bill and how it will impact your business please get in touch with one of our experts.