Financing - Parry Field Lawyers

To lease a premises in conjunction with purchasing or starting your own business can be a daunting prospect – often with good reason.

What’s my exposure?

A good starting point for your likely “exposure” is to simply multiply the annual rent and outgoings you are required to pay by the length of your lease as follows:

Assume a five year initial lease term at (say) $50,000 plus GST a year. Add in other property expenses such as rates, insurance and maintenance totaling (say) $8,000 a year, and you get:

$57,500 x 5 years + $8,000 x 5 years = $327,500.00.

This example illustrates that, like buying a house, signing a lease requires care and attention – including asking yourself the basic question: “How am I going to meet these obligations?”

Many tenants also don’t understand that when they sign a seemingly innocuous Agreement to Lease (most commonly in the form published by the Auckland District Law Society (ADLS)) they are usually also agreeing to be bound to the much more fuller terms of the ADLS Deed of Lease – i.e. the terms of the lease are effectively ‘struck’ or finalised as soon as the agreement is signed.

For these reasons, we strongly recommend you consult your lawyer before you sign any lease agreement.

Tips for negotiating a lease

Some particular areas you should turn your mind to when negotiating a lease include:

Check the Plan and Car Parks

Make sure the agreement contains a detailed plan of the premises including any common areas which you will have the right to use. You should be clear as to who else might have access to these common areas, and how that could impact on your use of the premises.
Any plan should also include car parks, and should specify which car parks will relate to your premises (ideally those directly outside your premises).

Final Measurement of Premises

Does the agreement contemplate a final measurement of the premises and if so, does this potentially affect the proposed annual rent?

Lease Schedules

Often the “premises condition report” and “list of landlords fixtures and fittings” schedules are not filled out in the agreement to lease. You should insist these are completed as they may avoid a dispute on expiry of the lease as to what degree of reinstatement of the premises is required, and also “who owns what” in terms of whether fixtures belong to the landlord or the tenant.

Business Use

Make sure the “business use” set out in the lease matches your intended use for the premises, and potentially any different use in the future – the relevance is that if the intended business use is not covered, you will need to approach the landlord for consent to change this.
In addition, make sure that your business use is permitted under the relevant City/District Council Plan (you may require specialist advice to determine this). If not permitted “as of right”, you might need a resource consent to carry out your proposed business activity.
You will also need to make your own determination as to whether the current state of the premises are fit for your particular use. If there is to be a change in the building’s use after you move in, its possible the premises require upgrading – which could come at a substantial cost (and usually a big surprise). An example might be changing from a retail shop to a restaurant/cafe – the latter will likely require (at a minimum) disabled toilets – and any upgrade will be the tenant’s, not the landlord’s, responsibility under the lease terms.

Don’t forget outgoings

Make sure you check the estimated annual outgoings for the premises. Since the Canterbury earthquakes, premiums for commercial buildings have increased significantly and the tenant is expected to bear these in full. In addition, be clear on what the excess under the landlord’s building insurance policy is. Some leases will limit the tenant’s contribution to $2,000, but others make the tenant liable for the full amount of the landlord’s excess. For older buildings, this is often expressed as a percentage of the overall building value, and can be extraordinarily high.
Be aware as well that in addition to funding the landlord’s insurances, you will separately need to insure your own business assets and risk.

Repairs and Maintenance

You should read the maintenance provisions of the deed of lease carefully, as tenants are often surprised to learn they are liable for most repairs, unless they are structural or due to a defect in design or construction of the building.

“Make Good” at Lease End

Make sure you are aware as to what reinstatement obligations you have at the end of the lease. The standard ADLS provisions provide that tenants can remove additions/alterations they have made on the basis that they “make good” any damage to the premises in removing them. Even if you don’t want to remove them, the landlord can still require you to remove such items.
It is helpful to try and anticipate at the outset of the lease what a sensible position on termination would be – for instance, it is often better to negotiate that your fit out will vest in the landlord without compensation at lease end, so that you are not later required to remove it (because the value of the fit out at the end of the lease will often be less than the cost to remove it/reinstate the premises).

Guarantees

You might be able to renegotiate the terms of any guarantee – for example, if your spouse or partner is named as a guarantor but doesn’t work in the business, you could argue he or she should be excluded from the guarantee.

In addition to these matters, your lawyer will be able to take you through the standard terms of the ADLS Deed of Lease and fully explain your rights and obligations including rent reviews, assigning your lease and damage to the premises, as well as what happens if you are unable to pay the rent.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Please contact Tim Rankin at Parry Field Lawyers (348-8480) timrankin@parryfield.com

Approval is needed where an “overseas person” acquires sensitive New Zealand assets and that includes where the investor is buying a tech company.

Normally if the purchase is of a start-up then the thresholds will not be triggered but it is also possible that a business may own “sensitive land” and in such a situation there is a procedure which needs to be followed. If you have a tech business that you are looking to sell then it pays to know what the hoops are that your purchaser may need to jump through.

This article describes the key points about the process to be aware of in advance.

From our experience in obtaining OIO approval we have drawn together the following points which answer the key questions an investor has about the process and steps required.

1. Who is the OIO? The Overseas Investment Act 2005 (OIA) is administered and enforced by the Overseas Investment Office (OIO) which processes the applications made. It is based in Wellington and its team is growing quickly as it deals with more applications and enforcement.

2. When is consent needed? Consent is required for an “overseas person”. In basic terms that means a person who is not an NZ citizen or a person ordinarily resident in NZ. However, it is worth discussing individual circumstances as it may be complicated to work out if a person/entity qualifies.

3. What about related parties back overseas? Even if the entity making the purchase is not an “overseas person” they may be an “associate” of an overseas person. If, for example, someone overseas is controlling their actions or funding the purchase. If so, then approval will still be needed.

4. What level of control are you talking about? This is a very wide definition and can be specific or general, indirect or direct and whether actually legally enforceable or not. It is trying to capture the individual that is acting for someone else who would need approval if they were the one that applied.

5. So what is a “sensitive” New Zealand asset? This can be complicated to determine but generally includes:

a. certain types of land such as non-urban land of 5 hectares or more (that is, most farms);

b. acquiring 25% or more ownership or controlling interest in an entity which has businesses assets worth more than $100 million (exceptions apply for Australians and some others that increase that threshold); and

c. fishing quotas.

6. I am only interested in buying land – is it sensitive? Determining if land is sensitive requires special analysis because, for example, it may include land that adjoins a reserve or public park or includes foreshore or seabed. So it may not be as simple as looking at the legal title description because you also need to look at what type of land there is surrounding it. Examples include land over 0.4 hectares that includes or adjoins reserves or historic or heritage areas, land on specified islands or if it is part of the foreshore or seabed.

If I need to apply then what do I need to show to get approval? If you are an overseas person then when you make an application you will need to satisfy:

a. Investor Test (good character, have business experience, be financially committed to that investment); and

b. Benefit to New Zealand Test.

8. How do I show Benefit to New Zealand? There are 21 criteria that the OIO will look at (eg will there be creation of new jobs). The OIO is also interested in understanding the ‘counterfactual’ – ie, what would happen if you didn’t make the investment (would someone else buy it, would they invest or not invest further money in it etc).

9. What if I am moving to New Zealand permanently, does that affect things? Yes – in that situation you may not have to satisfy the Benefit to New Zealand test.

10. How long will all this take? The OIO will categorise the application into one of three types and they will aim to respond within 30 – 70 working days, depending on the category of application. However, there is no statutory timeframe for the decision to be made so it could take less or more time, depending on the situation. The OIO may also ask questions of the applicant which can delay the process so it is really important to get the application right when it is first submitted. Last year 22% of applications were initially rejected as they lacked information or were of poor quality.

In our experience the OIO process does take time to comply with but it is fairly straightforward. If you have questions about any of the topics mentioned above then we would be happy to discuss your situation with you.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Reproduction is permitted with prior approval and credit being given back to the source. Contact Steven Moe at stevenmoe@parryfield.com to request this or for any other questions. Copyright © Parry Field Lawyers 2017.

Approval is needed where an “overseas person” acquires sensitive New Zealand assets. This article describes the key points about the process to be aware of in advance.

From our experience in obtaining OIO approval we have drawn together the following points which answer the key questions an investor has about the process and steps required.

Who is the OIO?

The Overseas Investment Act 2005 (OIA) is administered and enforced by the Overseas Investment Office (OIO) which processes the applications made. It is based in Wellington and its team is growing quickly as it deals with more applications and enforcement.

When is consent needed?

Consent is required for an “overseas person”. In basic terms that means a person who is not an NZ citizen or a person ordinarily resident in NZ. However, it is worth discussing individual circumstances as it may be complicated to work out if a person/entity qualifies.

What about related parties back overseas?

Even if the entity making the purchase is not an “overseas person” they may be an “associate” of an overseas person. If, for example, someone overseas is controlling their actions or funding the purchase. If so, then approval will still be needed.

What level of control are you talking about?

This is a very wide definition and can be specific or general, indirect or direct and whether actually legally enforceable or not. It is trying to capture the individual that is acting for someone else who would need approval if they were the one that applied.

So what is a “sensitive” New Zealand asset?

This can be complicated to determine but generally includes:

certain types of land such as non-urban land of 5 hectares or more (that is, most farms);
acquiring 25% or more ownership or controlling interest in an entity which has businesses assets worth more than $100 million (exceptions apply for Australians and some others that increase that threshold); and
fishing quotas.

I am only interested in buying land – is it sensitive?

Determining if land is sensitive requires special analysis because, for example, it may include land that adjoins a reserve or public park or includes foreshore or seabed. So it may not be as simple as looking at the legal title description because you also need to look at what type of land there is surrounding it. Examples include land over 0.4 hectares that includes or adjoins reserves or historic or heritage areas, land on specified islands or if it is part of the foreshore or seabed.

If I need to apply then what do I need to show to get approval?

If you are an overseas person then when you make an application you will need to satisfy:

Investor Test (good character, have business experience, be financially committed to that investment); and
Benefit to New Zealand Test.

How do I show Benefit to New Zealand?

There are 21 criteria that the OIO will look at (eg will there be creation of new jobs). The OIO is also interested in understanding the ‘counterfactual’ – ie, what would happen if you didn’t make the investment (would someone else buy it, would they invest or not invest further money in it etc).

What if I am moving to New Zealand permanently, does that affect things?

Yes – in that situation you may not have to satisfy the Benefit to New Zealand test.

How long will all this take?

The OIO will categorise the application into one of three types and they will aim to respond within 30 – 70 working days, depending on the category of application. However, there is no statutory timeframe for the decision to be made so it could take less or more time, depending on the situation.

The OIO may also ask questions of the applicant which can delay the process so it is really important to get the application right when it is first submitted. Last year 22% of applications were initially rejected as they lacked information or were of poor quality.

In our experience the OIO process does take time to comply with but it is fairly straightforward. If you have questions about any of the topics mentioned above then we would be happy to discuss your situation with you.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Should you need any assistance please contact Steven Moe at Parry Field Lawyers (348-8480) stevenmoe@parryfield.com

Muhammad Yunus was in Christchurch this afternoon and spoke to several hundred people. He is from Bangladesh and received the Nobel Peace Prize in 2006 for his work in microfinance and microcredit. He founded Grameen Bank (http://www.grameen.com/) which focuses on loans being given to people in villages who are too poor to receive traditional bank loans.

He told us the idea began from wanting to help local people to avoid loan sharks and he thought – “why not loan the money myself”? So he was solving an immediate problem back when he began in the 1970s. He told us that he studied how banks operate and then he purposefully tried to do the opposite. For example, banks usually required collateral for the loans they make but Grameen Bank do not. Now there are 2,600 branches throughout Bangladesh with 9 million borrowers.

He also talked about social business and the idea that this could help to solve problems while still making money. He compared this with pure charity where the money has a “one time use” as it is used and then gone compared to a social business which is sustainable. In this context he talked about how profit might not be the only incentive for people to set up a business and that there could be other incentives – such as making people happy. It would have been interesting to gain more insights about what form of social business might work best in a New Zealand context.

He finished by commenting on the fact that the top 1% of the population owns 99% of the world’s resources and that the wealthiest 8 people in the world own more than 50%. This concentration of wealth into ever fewer hands is what he sees as a great danger and there need to be new ways to combat this. HIs main theme was to work to try and reverse the way the system currently runs and what motivates it to try and address this.

The session ended with some questions although I felt at the very end like there were a lot of unanswered questions and details that would be fascinating to find out more about and explore. I was also left wondering how the ideas, which seem to have worked well in rural impoverished Bangladesh, might apply in relatively wealthy/middle class New Zealand.

It was great to hear the challenges from a Nobel Peace Prize Winner and wonderful that the event could be hosted in Christchurch – well done to the SingularityU Christchurch (which led this) and the other partner organisations: Akina Foundation, Ministry of Awesome, OHU, Te Putahi, XCHC and CCC.

Introduction

We’ve all seen the headlines about growing Chinese investment around the world and New Zealand is certainly no exception. Although you may already have been in business for years and have a great deal of experience, if you want to be truly successful with a Chinese counterparty then there are some key cultural differences which you should take on board. With that in mind we have set out some points to be aware of when you’re dealing with Chinese investors. Read more

QC and LAQC Reforms – New Announcement by the Minister of Revenue?

Most readers will know of the changes to the QC and LAQC regimes foreshadowed in the May 2010 Budget. The details announced in the the Budget were very brief.