Property - Parry Field Lawyers

Retirement and Lifestyle Villages continue to be a popular choice for older people who are looking to downsize and are attracted by the security and support found in a Village. At Parry Field we offer experienced legal advice on purchases in Retirement Villages across the range of villas, units, apartments and care suites.

What are you buying in a Retirement Village?

Most Villages offer an Occupation Right Agreement (ORA) also known as a licence to occupy the unit. An ORA entitles the resident to live in the unit but the ownership is retained by the Retirement Village. The Village also owns and manages the communal areas that you share with other unit owners. Unlike a freehold title the resident does not have full control of the unit and usually cannot use the unit as security for a bank loan.

Because the Village is the owner when the unit comes to be sold most Villages keep the capital gain (or incur any capital loss) made on the resale of the unit. The Village also usually does the redecorating prior to the sale. The timing of the sale funds being paid to you is usually delayed until the new resident has moved in.

Some villages are set up with ownership held by the residents by way of a unit title ownership for example. There are still usually restrictions on who you can sell the unit to, such as age limits.

Deferred Management Fees

On the sale of the unit a percentage fee is deducted from the amount you purchased the unit for, so you do not get the full purchase price back. Villages refer to this fee by a range of terms such as “Occupation Licence Fee”, “Village Contribution Fee” or “Net Management Fee” and in most villages the maximum is currently about 30% of the purchase price.

Other Fees

You will also pay a weekly service fee which may be fixed or may increase over time. If you get additional services in your unit (especially if it is a serviced apartment or a care suite) there will be additional fees for those services.

Retirement Villages Act 2003

Under the current legislation there is a register of Retirement Villages and an independent statutory supervisor. The statutory supervisor monitors the financial position of the Village which must provide annual audited financial statements. The statutory supervisor also holds the deposit you pay until you move into the village. The Act also requires disclosure of ORA terms to you. There is also a mandatory 15 working day cooling off period during which you can cancel after signing an ORA.

Legal advice

It is mandatory for intending residents to have independent legal advice before signing an ORA which means the lawyer witnessing your signature must explain the general effects of the agreement and its implications in an easily understood manner. There is no standard form agreement so it’s important that a review is done for the specific village. It’s also important to make any application conditional on the sale of your existing home if you need those funds to purchase the ORA. We can assist with this advice and encourage you to discuss your plans with us as soon as you start looking at moving to a Retirement or Lifestyle Village.

Partner, Luke Hayward, and Associate, Jo Mechaelis-Wall, specialise in advising on Retirement Village law.

The information contained in this outline is of a general nature, should only be used as a guide and does not amount to legal advice. It should not be used or relied upon as a substitute for detailed advice or as a basis for formulating decisions. Special considerations apply to individual fact situations. Before acting, clients should consult their Parry Field Lawyer.

In New Zealand, residents’ associations have been a common way of managing a common area of land around residents’ houses or units, or sometimes they are used as advocacy and community. In this article we focus on residents’ associations that own or manage property for the benefit of residents. Residents’ associations are often established as incorporated societies, existing for the benefit of their community of residents and to manage an area of common land or facilities.

Due to a change in the law, all incorporated societies in New Zealand will need to re-register to comply with the Incorporated Societies Act 2022. It’s important to note that if an incorporated society does not reregister by April 2026 then it will cease to exist.

When considering re-registration, residents’ associations should take into consideration:

If there is a common area used by residents, and who owns this property?
Who manages the insurance of the property?
Will the current area of the property be subject to change in the future?
Are there other obligations and parties we need to consult (i.e. councils, developers).

It’s important to note that if your residents association does own property, it needs to consider whether it would like to re-register – more information here.

If you would like assistance with your residents’ association, please get in touch.

We support incorporated societies and regularly answer related queries. If you would like to discuss further, email incorporatedsocieties@parryfield.com and a member of our Parry Field Lawyers team will be in touch.

Part 3: Alternative Pathway Available for Entities Providing Housing

If you have got to Part 3, obtaining charitable status may not be the most viable option for your entity. As mentioned in Part 2 , an alternative pathway is to apply for an exemption through Inland Revenue whereby income derived from your entity will be exempt from tax.¹⁰

To be eligible, your entity must:

(a) Be either a trust or a company;

(b) Be registered as a community housing provider (for more on that, see our Community Housing guide);

(c) Not be carrying out its activities for any personal gain or profit;

(d) Ensure that all profits made are to be retained by the entity or either distributed or applied to its beneficiaries or clients, other community housing providers that meet this exemption, tax charities, or organisations with are allowed to receive charitable donations; and

(e) Ensure that those who control the entity cannot personally benefit from the entity’s activities.¹¹

However, you must ensure that no more than 15% of your entity’s beneficiaries and clients have income or assets over particular amounts. Provided your beneficiary or client has never owned property before, then they must just satisfy the income limit requirement. Currently, the income limits are:

(a) Income limit for a single person’s income: ≥$85,000

(b) Income limit for a group of people: ≥ $130,000.¹²

The asset limit varies depending on where abouts your beneficiary or client will reside in. Currently, the asset limit ranges from $80,000 – $120,000.¹³

Conclusion

We have helped many groups in this area and have created a free guide for Community Housing providers which is available here.

If you would like assistance in obtaining a tax exemption for your entity, please contact us and we can help you decide which pathway is better suited for your entity.

This article is intended for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please contact a qualified legal professional. Reproduction is permitted with prior approval and credit to the source.

¹⁰Inland Revenue “Community Housing Providers” <www.ird.govt.nz>.
¹¹Income Tax Act 2007, s CW 42B (2).
¹²At s CW 42B (3), Schedule 34 (1).
¹³At s CW 42B (3), Schedule 34 (2).

Part 2: When will an Entity which Provides Housing not be seen as Charitable?

In this first Part of this series here we dealt with when housing can be considered charitable. Now in this Part 2 we are going to consider the opposite scenario and when it applies.

The key hurdle for an entity to overcome in obtaining charitable status is to ensure that its purposes in providing housing meet the definition of a charitable purpose outlined in the Act. The relatively recent case of Queenstown Lakes Community Housing Trust provides guidance for us to consider.

Although each situation will be decided on a case-by-case basis, some situations where an entity may not be seen as having a purpose which is charitable when it comes to providing housing include:

(a) Those who are eligible to partake or receive the entity’s assistance do not fall within the scope of the term “poverty”. For example, an entity may have various schemes or programmes which seek to assist particular people into home ownership. However, these people may not necessarily be considered to be in poverty or necessarily in need of assistance, such as those that make a low to moderate income;

(b) An entity’s services may confer a private benefit on selected individuals, such as assisting them to meet housing costs and eventually into home ownership. Although this appears to be an inevitable outcome of providing assistance to individuals, the courts have emphasised that housing is a basic human need and right, not home ownership.⁸ If your entity’s purposes are more swayed towards assisting individuals into home ownership, it may prevent your entity from obtaining charitable status;

(c) There may be reasonably available and realistic alternatives for those an entity is assisting into housing. This may, for example, include cheaper accommodation in the surrounding regions of the area an entity is providing housing in – so the facts around where this is to be done is important. We have even seen Charities Services become interested in stats around the poverty in a particular area; or

(d) The benefit to the community in providing housing may be too indirect, remote, or nebulous. It may be that in providing housing, an entity’s purpose is to promote urban and rural regeneration, a purpose which has been accepted by the courts as capable of meeting the charitable purpose definition.⁹ However, if an entity’s purpose is to provide housing for individuals which may then lead on to some sort of public benefit (for example, improving the welfare of the community), then such entity may not be granted charitable status. The public benefit an entity seeks to achieve through providing housing must outweigh the private benefit that it naturally confers.

If you believe your entity will not meet the requirements to be a registered charity due to the considerations we have discussed there is still hope. An alternative option is to apply for an exemption through Inland Revenue. See Part 3 for further details on this option.

We have helped many groups in this area and have created a free guide for Community Housing providers which is available here.

This article is intended for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please contact a qualified legal professional. Reproduction is permitted with prior approval and credit to the source.

⁸Re Queenstown Lakes Community Housing Trust [2011] 3 NZLR 502 (HC), at [41].
⁹At [70].

Part 1: When an Entity which Provides Housing will be Charitable

We support many groups looking at providing housing and often answer this common question. In this three-part series, we set out the information you need to know.

An entity may be eligible for registration as a charity and the resulting income tax exemption, provided it obtains that charitable status, although this pathway may not suit all entities.

In this Part 1, we outline when charitable status can be obtained. In Part 2, we explain when entities which provide housing may not be granted charitable status. Part 3 outlines an alternative pathway through Inland Revenue which may better suit some groups.

A Charitable Purpose

When seeking registration on the Charities register, a key question for an entity that’s purpose is to provide housing is whether this purpose qualifies for charitable status. Under the current Charities Act 2005 (the “Act”), an entity will qualify for registration as a charitable entity if it is advancing charitable purposes and provided it is:

(a) a trust which has an amount of income derived by the trustees in trust for charitable purposes; or

(b) a society or institution which is established and maintained exclusively for charitable purposes¹.

A charitable purpose is defined within the Act as a purpose which includes purposes such as:

(a) the relief of poverty; or

(b) advancing education; or

(c) advancing religion; or

(d) any other matter that is beneficial to the community.²

So how poor is poor?

There is currently no set definition for what constitutes “poverty” so it can be unclear what will qualify to reduce it.

This is important for community housing providers because often they are helping those who are poor – but are they poor enough?

The courts have made it clear that they will look into who is eligible to participate in the entity’s programme, what the participants’ needs are, and whether they are capable of meeting such needs.³ This also involves looking at whether there are any alternative options available for participants in that region which may mean they are not considered to be in a state of poverty.⁴

As long as an entity provides housing to those generally considered to be in poverty (for example, those who are homeless) then the entity may qualify for charitable status.

How does this impact a housing provider?

An entity that provides housing may also qualify for charitable status on the basis that what it does is beneficial to the community. For example, an entity’s purpose may be to provide housing in areas of social and economic deprivation in order to promote and regenerate rural and urban areas.⁵ However, according to Charities Services, the benefit to the community must be clearly identifiable; it cannot be “too nebulous and remote, or simply ‘hoped for’”.⁶

Although these are the key aspects which will be considered, Charities Services will also look at various other factors before granting charitable status to an entity that provides housing. This could include any non-charitable purposes of the entity and the entity’s current and future activities.⁷

The requirements stated above appear to make obtaining charitable status for an entity that provides housing very simple. However, there can be situations where it is not so clear if these requirements are met. We discuss such situations in Part 2.

We have helped many groups in this area and have created a free guide for Community Housing providers which is available here.

This article is intended for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please contact a qualified legal professional. Reproduction is permitted with prior approval and credit to the source.

¹Charities Act 2005, s 13 (1).
²At s 5 (1).
³Re Queenstown Lakes Community Housing Trust [2011] 3 NZLR 502 (HC), at [31].
⁴At [41].
⁵At [69] – [70].
⁶Charities Services Registration Decision: Queenstown Lakes Community Housing Trust (QUE51343, 2 November 2015) at [21].
⁷Charities Act 2005, s 5 (3), (4), s 13 (3)(a).

How do you keep safe if you are overseas but buying land in New Zealand?

Two overseas investors, William Mitchell and Marzio Keiling, faced legal consequences for attempting to circumvent the laws around purchasing forestry land in New Zealand.

The pair used a strategy of incorporating New Zealand Companies where the main shareholder was a New Zealand Citizen. This was done so that the Company could purchase land with the pair behind the scenes funding their respective investments. As these were then “New Zealand Companies” with majority shares held by New Zealanders, they did not apply or obtain consent under the Overseas Investment Act (“the Act”) to purchase.

Mitchell, bought eight forestry blocks, totalling 111 hectares, in the Tairāwhiti/Gisborne area in 2011 through his company, Heidi Mitchell Sustainable Ltd (HMSL). Keiling set up AJN Land Ltd (AJN) in 2014 and purchased a 160.6-hectare forestry block near Auckland. Both properties were classified as “sensitive land,” requiring government approval before purchase, which neither obtained prior to purchase.

Land Information New Zealand (LINZ) took the investors to court, seeking penalties and orders to sell the properties. The court ruled that both companies had breached s42 of the Act, (an overseas person giving effect to an overseas investment without consent under the Act), and Mitchell also admitted to liability under s43 of “knowingly or recklessly enter[ing] into a transaction that defeats, evades or circumvents the operation of the Act.” The Court ordered Mitchell and Keiling to pay penalties totalling over $1.6 million and to divest their remaining properties.

The key point of this is to be careful when buying property in New Zealand. If you are interested in your options and would like to discuss further, please contact our team, or read more here.

Please note that this article is not a substitute for legal advice and you should contact your lawyer about your specific situation. Please feel free to contact us by phone 03 348 8480.

New Zealand welcomes foreign investment as a way to develop the economy and boost the capability of New Zealand companies. However, if the investment involves sensitive New Zealand assets, the Overseas Investment Office (OIO), requires overseas investors to go through a mandatory application process. So, before an overseas investor makes a purchase in New Zealand it is important to be aware of what’s involved in order to stay safe and avoid fines or adverse publicity. Our summary is set out below and we are happy to discuss your situation with you. Also checkout our Doing Business in New Zealand guide.

Who is an overseas person?

An “overseas person” is defined as a someone who is not a New Zealand citizen or a person ordinarily resident in New Zealand, or an entity (partnership, trust, company) incorporated overseas or where an overseas person has more than 25% ownership or control.

Even if the person making the purchase is not an “overseas person” they may be an “associate” of an overseas person, meaning that someone overseas is controlling their actions. The term “control” is given a very wide meaning and can be specific or general, indirect or direct. It recognises that where control exists, the purchaser is really the overseas person, and therefore approval is still needed.

Buying sensitive land

Consent is needed for five hectares or more of non-urban land (this covers most farms), or land which is defined to be sensitive:

foreshore, seabed or one of certain named islands;
greater than 4,000 square metres and contains (or adjoins) a reserve, lake or foreshore;
land of historical or conservation significance.

Farm land is a particularly sensitive potential acquisition. Farm land being sold must first be offered on the open market in New Zealand so that New Zealanders have the chance to buy it before an overseas person. Find out more about how it must be advertised.

Significant Business Assets

Consent is also required if an overseas person plans to:

establish a new business at a cost of more than $100 million;
acquire a business if the value of the business exceeds $100 million; or
acquire 25% or more of a company where the value of the consideration or the assets of the target company and its subsidiaries exceeds $100 million.

These monetary thresholds may be impacted by agreements with other countries. For example, the figure in 2023 is $618 million for Australian non-government investors. For those countries which have signed up to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership the figure will be $200 million.

If one of the above actions is proposed, then an investment proposal application may be needed.

What do investment proposals include?

An overseas person wishing to invest will need to provide comprehensive information about themselves and the proposed investment. To succeed they will need to satisfy both the ‘Investor Test’ and the ‘Benefit to New Zealand Test’.

The Investor Test requires applicants to show they are of good character, that they have business experience, and are financially committed to that investment.
The Benefit to New Zealand Test has 21 criteria. These include the chance to highlight benefits, such as whether the investment will create new jobs, what access the public will have to the land, new technology that may be brought in, and how historic heritage or conservation areas will be protected.

When making its decision on the proposal the OIO will also consider what would happen if the applicant did not make the investment. For example, they will be interested in likelihood of someone else buying the property or business and whether that person would invest (or not invest) further money in it.

It is important to note that if a consent is granted it will typically contain conditions that must be followed and also contain some requirements to report back to the OIO. If a consent is not granted and the investment goes ahead, penalties such as divestment of the acquisition as well as fines and even imprisonment may apply. This article describes what can happen if investors fail to get consent and go ahead anyway.

How long does the process take?

The OIO will provide an estimate of how long it will take to make its decision. It aims to respond within 40 working days for Significant Business Assets applications and within 65 working days for Sensitive Land applications. However, it may take more or less time, depending on the situation and the number of applications it is dealing with.

Approximately 25% of applications are immediately rejected as they lack information or are of poor quality, likely because the applicant did not get advice first. The OIO may also ask for more information from the applicant, which can delay the process.

We recommend seeking expert advice to help ensure the application is as correct as possible to avoid issues arising. We have experience with assisting applicants through this process and would be pleased to assist you.

Be sure to check out our free guides such as ‘Doing Business in New Zealand’ and the ‘Start Ups Legal Toolkit’.

If you have any further queries please do not hesitate to contact one of our experts at Parry Field Lawyers- stevenmoe@parryfield.com, yangsu@parryfield.com or annemariemora@parryfield.com

This article is general in nature and is not a substitute for legal advice. You should talk to a lawyer about your specific situation. Reproduction is permitted with prior approval and credit being given back to the source.

The Incorporated Societies Act 2022 (“Act”) has created new requirements that all incorporated societies must meet in order to reregister under the Act. The most relevant requirements that may prevent your Residents Association from reregistering under the Act are discussed below.

Background

A Residents Association is a type of incorporated society that exists for the benefit of the community it serves. It might maintain community facilities or common areas, or simply serve as a forum for members to come together and organise community activities. Some Residents Associations will own common land as well.

Most Residents Associations will be registered under the Incorporated Societies Act 1908, which means that they will need to prepare for and reregister under the Incorporated Societies Act 2022. We have an Information Hub dedicated to the changes in the new Act and what organisations need to do in order to reregister – you can find it here.

There are some requirements under the new Act that may impact your Residents Association and your ability to reregister – here’s what you need to know.

Nominating a not-for-profit entity on wind up

Section 26 of the new Act sets out a list off requirements for what incorporated societies must include in their constitution. We have written a series of six articles on these requirements, which you can find on our Information Hub.

The key requirement for Residents Associations to be aware of is set out in section 26(1)(l). This explains that incorporated societies must nominate a not-for-profit entity (or a class or description of not-for-profit entities) to which any surplus assets are distributed to on liquidation or removal from the register. The definition of a not-for-profit entity is set out in section 5.

Generally, the members of Residents Associations are homeowners in the subdivision or community, so Residents Associations like this who hold land on behalf of members wouldn’t be able to distribute property to members under this provision on wind up.

This will cause issues for many Residents Associations who own common land, as the “winding up” provision will often say that any surplus assets should go to the members – that way the residents will each get a share in the land when the society winds up. If your Residents Association is in this situation just let us know – we are happy to support you in considering your options moving forward.

Purposes – can’t be for the financial gain of members

Under section 26(1)(b) of the new Act a society’s constitution must include its purpose. This makes a lot of sense and may not seem like an issue on the face of it, but the new Act also sets out that the Registrar may refuse to incorporate a society if its purposes are unlawful. An unlawful purpose includes where a society is carried on for the financial gain of any of its members. Section 23 of the new Act then explains that a society must be treated as having the purpose of being carried on for the financial gain of its members where:

it distributes, or may distribute, any gain, profit, surplus, dividend, or other similar financial benefit to any of its members (whether in money or in kind); or
it has, or may have, capital that is divided into shares or stock held by its members; or
it holds, or may hold, property in which its members have a disposable interest (whether directly, or in the form of shares or stock in the capital of the society or otherwise).

The most relevant clause to Residents Associations is the third provision. If the Residents Association’s assets are set to go to members on wind up, then those members would have a “disposable interest” in property. A clause such as this or any other clause in the constitution that suggests members should get the Residents Association’s assets would then be in breach of the new Act.

Section 24 of the new Act provides a list of examples of when a society does not have a financial gain purpose. We think that although some of these could be stretched to apply to Residents Associations, section 23(1)(c) is so clear that it would not make sense to interpret the new Act in that way.

What now?

As some Residents Associations won’t be able to reregister under the new Act with their current land ownership and constitutional structure, it’s time for each of these Residents Associations to consider their options moving forward. This is something we are well placed to advise on, as we regularly come alongside both incorporated societies and property holding organisations to consider their structure options.

If you believe your Residents Association may be unable to reregister under the Act due to the reasons above, please feel free to contact Judith Bullin or Sophie Tremewan at Parry Field Lawyers. Our team are more than happy to assist you to make the changes needed to reregister under the Act.

We help with unincorporated and incorporated societies and answer questions all the time. If you would like to discuss further, please contact one of our team on judithbullin@parryfield.com or sophietremewan@parryfield.com at Parry Field Lawyers.

Our Partner, Steven Moe had first met Panapa back in 2017 when they were both on a panel about legal structures at the Social Enterprise World Forum held in Ōtautahi Christchurch.

When we first spoke with Panapa Ehau from Hikurangi Enterprises about their social housing plans for their people we knew this would be a special project. Based on the beautiful East Coast of the North Island in Te Tairāwhiti, the heart of the idea was to enable their people to gain access to housing. He says:

“Anything we do or engage in is founded upon high trust relationships and kaupapa. Parry Field is part of our wider network that share a similar vision of doing great work to increase the wellbeing of people and the environment around us. The network are outcomes focused on intergenerational change. The partnerships that evolve are pono (true) and tika (true) in all aspects bringing together knowledge, skills and experience of many for the benefit of all involved”.

We discussed possible legal structures that could be used ranging from companies, incorporated societies or limited partnerships but eventually settled on setting up a charitable trust. The reason for this was the initiative is all about reduction of poverty with an addition of education thrown in as well. A charitable trust is a stable legal vehicle to use for an initiative like this (for more on legal structure options, read our free guide “Charities in New Zealand: A Legal Handbook”).

There was a lot of thought put into what the governance framework would look like and also how this new entity would interrelate with other entities that were already existing. Fortunately there were several other groups who want to see this succeed including the Tindall Foundation and Community Finance who each offered support in different ways.

One challenge which is worth others considering was what name to choose – the original name selected was already used by another entity so another was chosen: “KAENGA HOU TRUST”.

Drafting the Trust Deed, we next spent considerable time to really think about how to express the charitable purposes and how they really summarise what this is about:

Subject to clause 3.1 and without in any way derogating from it, the Trustees may also devote or apply both capital and income of the Trust to further charitable purposes by:

Providing education in the form of courses, seminars and written information for whanau and community housing providers about providing housing for whanau who are disadvantaged or poor and would otherwise not have access to housing;
Providing education and developing wrap around services to support whanau who are disadvantaged to access housing;
Providing support for whanau who are disadvantaged to be able to have access to housing; and
Participating in systematic change initiatives that increase knowledge and pathways for disadvantaged whanau access to housing including advancing education about homelessness and housing issues.

Another feature of the Trust Deed which is worth mentioning is the inclusion of principles (mātāpono) that we often suggest to clients to include. These are not purposes themselves but they help to set the “tone” for the new charity and its focus so it is worth including here:

3.4 In carrying out the Charitable Purposes, the Trustees will be guided by the following principles (Mātāpono):

respecting and implementing the dual heritage of the partners of Te Tiriti o Waitangi (the Treaty of Waitangi);
respecting the cultural diversity of people and communities and encouraging people from all whakapapa and backgrounds;
inspiring and enabling people and communities to reach their full potential and take ownership of their future;
maintaining high standards of professionalism, integrity and ethical conduct; and
enabling positive social change from within, by building capable communities with the belief, the means, and the opportunities to create sustainable positive outcomes for all stakeholders and future generations.

It was a happy day in January when the email came in saying “I am pleased to advise that KAENGA HOU TRUST is now a registered charity.”

A successful registration as a charity has meant the project can continue forward and funding partners have stepped up with significant contributions. Watch this space and lets see what comes next!

What are you buying in a Retirement Village?

Deferred Management Fees

Other Fees

Retirement Villages Act 2003

Legal advice

Part 3: Alternative Pathway Available for Entities Providing Housing

Conclusion

Part 2: When will an Entity which Provides Housing not be seen as Charitable?

Part 1: When an Entity which Provides Housing will be Charitable

A Charitable Purpose

So how poor is poor?

How does this impact a housing provider?

How do you keep safe if you are overseas but buying land in New Zealand?

Christchurch CBD

Christchurch – Riccarton

Rolleston

Hokitika

Auckland