Forestry rights and the Overseas Investment Act reforms for forestry
John McSoriley, New Zealand Tree Grower May 2018.
Forestry rights have been in the news lately because the government is in the process of making them subject to different rules where they are acquired by people not resident in New Zealand. However, for most of us, this is not something we need concern ourselves with when thinking about someone growing trees on our land. Forestry rights for small-scale forestry are a simple, flexible option for land owners who may want encourage investors to be part of a forestry project on their land.
For small-scale foresters, using the process of a forestry right is a way to reduce your costs and your direct involvement with growing trees, if that is what you want. The minimal formal requirements required for a forestry right mean that the costs of entering into it are a lot less than other joint venture arrangements such as leases.
An extension of the law
Forestry rights were introduced in 1983 as an extension of the law relating to ‘profits à prendre’ − a right to go on to another’s land to extract or harvest some substance or produce such as minerals or timber. The Forestry Rights Act extended that right to include rights to plant and maintain trees as well as felling and removing the timber. A forestry right may include a single crop of trees of one or more species, multiple crops of trees of one or more species and any planting of trees of one or more species having the same or different expected harvest dates.
A forestry right may also grant or reserve rights of access, rights of construction and use of tracks, culverts, bridges, buildings and other works and facilities if those rights are ancillary to, and necessary for, the forestry right. The forestry right may also allow for charges, payments, royalties or division of the crop including the right to receive and the obligation to surrender carbon credits.
The formal requirement for the creation of a forestry right is that there must be a someone to give the right, in other words the land owner or lessee. In the Act the term used is ‘proprietor’ and the person to whom the right is given is called the ‘holder’ of the forestry right. However, a proprietor may create a forestry right for themselves. The holder of a deferred payment licence for the land under the Land Act is considered to be a proprietor under the Forestry Rights Act.
Flexibility of forestry rights
The common law concept of the profit à prendre, as it was developed by English courts, has been expanded to adapt it to New Zealand forestry needs. In particular −
- Investors can be granted the right to develop land for forestry in most respects as if they were the lessee of that land
- Land owners can, as far as practicable, retain full access to and use of the forest land as though they had granted a mere licence or easement over it
- Investors can cut down and remove trees as though they had been granted a simple profit à prendre as well as having the rights to plant and grow the trees
- Those involved can write their own bargain regarding sharing profits, benefits of carbon credits, location of trees and any number of other relevant matters.
Carbon credits or New Zealand Units
The rights and obligations in relation to carbon credits run with the land and are therefore, in the first instance, the responsibility of the land owner or proprietor. It is very important in drawing up the forestry right that the requirements of the climate change legislation are provided for. The land proprietor may assign the benefit of the carbon rights to the holder of the forestry right but this will need to be balanced with the proprietor’s obligations to replant after the forestry rights ends.
This will be particularly important if the forestry right is only to extend over one or two rotations. To make these arrangement, those involved will need to agree on the value to be given to carbon credits. Alternatively, provision can be made in the form of ratchet clauses or some other mechanism to take account of changes of carbon credit values in relation to any arrangements to share the royalties resulting from harvesting.
The Overseas Investment Act
Under the current law, an overseas investor who acquires a forestry right is exempt from the screening requirements provided in the Overseas Investment Act. The original reason for this was probably because forestry rights are not interests in land and do not give the holder exclusive possession of the land. In spite of this, as is indicated above, for all practical purposes, the rights of the holder of a forestry right are generally identical to the rights of a forest lessee. Leases are subject to the Overseas Investment Act. The government has now introduced legislation so that where forestry rights covering more than 1,000 hectares are acquired by overseas investors, permission from the Overseas Investment Commission will have to be obtained. The government has stated that it is important that forestry rights are included within the screening regime before the Comprehensive and Progressive Trans-Pacific Partnership comes into force, but that ‘it will be possible to tighten or further loosen the criteria applied to forestry investment in the future if required.’
- A forestry right is a is a legal right to enter on to another’s land to plant, maintain and harvest a crop or crops of trees
- Agreed arrangements or forestry covenants are recorded in the forestry right document registered against the land title. It binds the proprietor of the land at the time the forestry right is created and all subsequent owners or lessees of the land during the term of the forestry right whether the land or lease is sold or inherited
- Where the proprietor is a farmer the forest right should not stop normal farming operations on the land except where they are inimical to forestry operations such as planning, maintenance or harvesting, but these matters should be set out fully in the forestry right document so all involved know their rights
- The forestry right document will set out the financial arrangements especially where there is to be sharing of stumpage or royalties
- The forestry right document must be carefully drafted, especially in relation to carbon credits and how the benefit of them is to be shared between the proprietor and the holder of the forestry right.
John McSoriley was the legal manager in the Ministry of Forestry from 1990 to 1995. Since then he has practised law mainly in the legislative area.