Our German Desk
As New Zealand renewable energy developments continue to attract interest from global investors, we take a look at some recent approaches of the Overseas Investment Office in assessing consent requirements for solar projects.
Easements, exempted interests and solar farms
Easements are rights agreed between a landowner and another party, allowing use of land for a particular purpose. They are commonly used in land developments where infrastructure or services passes over, under or through a piece of land, to serve an adjoining property. An easement is not an exclusive right to occupy land but can give a person a right to use the land for a specific purpose.
In the context of foreign investment projects, easements and certain ‘non regulated’ profits à prendre fall within the definition of “exempted interests” under the Overseas Investment Act 2005 (“OIA”). This means that foreign investors structuring their investments via easements (even where “sensitive” land is involved) are ordinarily able to proceed without the need to secure an investment approval from the Overseas Investment Office (“OIO”).
The size and location requirements of solar farm developments are such that land designation is typically ‘sensitive’, meaning that the consent of the OIO is required where a foreign investor intends to acquire a freehold or long term (over 10 years) leasehold interest in the land. Such an acquisition would, under the OIA, require the investor to demonstrate a benefit to New Zealand. Although a genuine commitment to develop a renewable energy project by a quality overseas investor would likely be looked upon favorably by the OIO, the investor would also need to go through the relatively time consuming and costly process of preparing and submitting an investment application to the OIO.
Unlike many types of other land intensive foreign investment projects, the developer of a wind or solar farm would not usually require exclusive possession of the entirety of the land on which their infrastructure sits. In such projects, it is common for the renewable energy infrastructure (such as solar panels) to exist alongside subsisting non-urban or farming uses of the land (including the grazing of sheep, cattle and growing of silage).
As the land use is considered non-exclusive and in light of the comparative lack of regulatory burden that is associated with easements, it comes as no surprise that foreign investors in the renewable energy space may prefer to structure the land rights component of their investment in New Zealand via an easement instead of acquiring the freehold (or leasehold) rights in sensitive land.
Recent approach by the OIO
The OIO has, over the past few years, considered several applications from foreign investors seeking to structure the land components of their renewable energy investments through easements. Here are a few key ‘take aways’ from the OIO’s approach:
- The OIO has indicated they will look to the substance of a project and the overall purpose and use of the land, not just the form of the proposed land instrument, in assessing whether the transaction is of a nature requiring OIO consent.
- If a developer is using an easement to establish a solar farm, the OIO would look very closely at how intensively the project uses the land and the footprint of the solar farm relative to the land.
- It will always be a question of degree, but if the developer intends to completely cover the land with solar panels, then the OIO will likely be of the view that full consent is required (even where there remain some residual farming uses on the land).
Pre application meetings remain a prudent way to get high level feedback from the OIO on any land components of the proposed investment. The OIO have also indicated that if an investor were to proceed with a solar farm development on the basis of an easement (in the absence of any discussions with the OIO) it may be considered by the OIO as a breach of the OIA, which could result in an investigation.
Farmland – further restrictions to consider
The features of solar farm developments mean that suitable land is often already being used as farmland exceeding 5 hectares. Where the land in question meets the definition of ‘farmland’ under the OIA, there are further restrictions which must be considered in light of any foreign investment project:
- If land acquired by a foreign investor includes farmland, the owner of that farmland needs to adhere to (or obtain an exemption from) the farmland advertising criterion prior to any sale of the land to foreign investors. We have touched on these requirements in more detail in our previous article: Final changes to the overseas investment regime now in force | Hesketh Henry.
- The farmland benefit test will apply to foreign investment transactions touching farmland – this is an elevated threshold from the normal ‘benefit to NZ test’ and requires the applicant to demonstrate particular emphasis on certain benefit factors (economic benefits and oversight or participation by New Zealanders).
It is possible in some circumstances for an investor to apply for an exemption (under section 20 of the OIA) from the farmland advertising criterion. An exemption may be granted if the relevant Minister considers that, due to the circumstances of the investment or the nature of the relevant interest in land, the investor has good reason not to be bound by the usual farmland advertising rules. In several recent decisions Ministers have granted exemptions for solar farm developments, emphasising the unique characteristics of those developments. Reasons provided in recent decisions of the OIO include:
- That solar farm developers have to proactively approach landowners due to very specific land requirements of such developments (the existing owners may have no general desire to lease or sell their land to a third party);
- That solar farm developers typically have to undertake feasibility studies before such developments can proceed, and so there would be significant risk and uncertainty to as regards what land would need to be advertised;
- Where the interest being acquired is leasehold, the freehold interest remains in New Zealand ownership and the land can revert back to exclusive farming use on expiry or termination of the lease; and
- The granting of an exemption is consistent with the principle that overseas investment should benefit New Zealand, noting the high importance the Government places on renewable energy.
An application for an exemption from the farmland advertising criterion is best made in advance of an application for consent. This is because advertising of farmland is a criterion for consent which cannot be satisfied after an application is submitted if the farmland exemption is declined.
Final thoughts
Foreign investors should be prepared for the possibility of a full OIO application process when embarking on a New Zealand solar farm project, particularly in circumstances where the solar infrastructure is intended to completely cover the land. Investors also need to navigate the particular regulatory requirements when dealing with farmland. Recent decisions show that investors in solar projects might have a good chance of success in applying for an exemption from the farmland advertising criterion, but this should ideally happen before making an application – so strategic planning is required.
Hesketh Henry regularly assists offshore clients (including large corporates and individual investors) with investment applications to the OIO. If you have any questions about investing in sensitive land within New Zealand or any other matter, please get in touch with our Corporate & Commercial Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
