Ban on foreign ownership of residential land will add costs and risks
The New Zealand Law Society says a proposed requirement for lawyer certification in the Overseas Investment Amendment Bill will likely result in an increase in conveyancing costs for home buyers.
A key proposed change will require certification from anyone doing conveyancing work for a purchaser, that the purchaser will not contravene the Overseas Investment Act by buying the residential property.
Providing incorrect certification, or failure to provide certification, could result in a lawyer receiving a conviction and $20,000 fine.
The Law Society says this new requirement does not reflect the reality of the majority of residential property sales.
“It’s common with residential property sales (such as auctions) that a buyer will have their first contact with a lawyer when they have already entered into a binding contract with the seller,” says Law Society spokesperson, Duncan Terris.
He says if it later transpires that the purchaser was not entitled to purchase the property, severe complications could result, affecting not only the purchaser but also the property seller.
“The increased obligations on lawyers will increase their exposure to a risk of innocently or unwittingly aiding someone to breach the Overseas Investment Act. This risk may ultimately be reflected in higher conveyancing fees,” he says.
The Law Society says potential issues could be eliminated by simply placing the obligation to state that a purchaser is not breaching the Act by buying a residential property to where it logically belongs; with the prospective purchaser.
It says an objective test has been proposed in the Act which will enable a prospective purchaser to ascertain for themselves whether they are eligible to buy the property.
The Law Society says this should be one of the first steps taken early in the home buying process, before lawyers typically become involved.
“This could be incorporated into the ‘industry standard’ Agreement for Sale and Purchase of Real Estate used almost universally in residential land transactions in New Zealand. It would satisfy the requirements for Overseas Investment Office information-gathering relating to the residential ban,” Mr Terris says.
He says this solution would also minimise the number of land transactions that might fail due to ineligibility, and would protect innocent vendors from the risk of accepting offers from ineligible purchasers. This, he says, is far preferable to the Bill’s proposed requirement for lawyer certification.
The Law Society is also offering its assistance and expertise with drafting changes to the Bill.
Last updated on the 1st March 2018