Johnston Lawrence

Property Developers and the Securities Act: Compliance required

2 November 2008. by NZ Law Releases , tagged with Business Law | NZ LAW Releases | Property

Property developers and sub-dividers who sell interests in land involving schemes of unit ownership, along with company or other incorporated structures, or income pooling schemes, must be aware of the need to comply with the Securities Act 1978, unless the scheme can be brought within permitted exemptions.

The Securities Act captures:

• Offers of securities to the public, and
• Securities that include a right or interest to participate in property, both real and personal

However the Act does not apply where the purchaser gets a specific title to the land that comprises all the interest unless the interest forms part of a contributory scheme, and does not entitle the holder to a right in respect of a specified part of the land for which a separate title can be issued.

Contributory scheme

A contributory scheme is one involving the investment of money in return for an interest in property which can be used together with any other interest in property except where the number of investors is five or less and neither the scheme manager nor an associate manages any other such scheme.

Where the Securities Act does apply, a prospectus and investment statement will be required unless:

• One of the other exemptions under the Securities Act can be invoked, such as
  • Offers only to eligible persons, ie: ‘wealthy’, ‘experienced in investing money’ or in the ‘industry or business relating to the particular security’, and
  • Offers only to close business associates of the
• The Securities Act (Real Property Developments) Exemption Notice 2007 can be invoked. This exemption allows a developer to sell a property which has the benefit of communal facilities without the necessity for a prospectus or investment statement. The communal facilities (amenities plus utilities such as roads, drainage, waste water, power and related services) have to be owned by an incorporated society or company (‘the specified entity’). Before signing up a purchaser, the developer has to provide the purchaser with various documents including the constitution of and management agreement for the specified entity, a transfer deed relating to the communal facilities, all material instruments relating to the facilities, staged development information (where applicable) and levies.The deposit paid by the purchaser must be held in a specified trust account until the agreement becomes unconditional.
• The Securities Act (Real Property Proportionate Ownership Schemes) Exemption Notice 2002 as amended 2007 can be invoked for collective investments in property, for example, schemes for campers buying up coastal camping grounds. Again there is no need for a registered prospectus and investment statement, and further advantages are:
  • A nominee can take title on behalf of all investors, and
  • The offeror can be a lawyer, a trustee company or real estate agent.

  The exemption extends to undivided property schemes, undivided unit title schemes and unit title pooled schemes. The offeror must produce a statement which includes all relevant and audited financial information, and a valuation report and other incidental requirements.

The Securities Act details the harsh consequences of a breach in compliance. Our recommendation is to do it right the first time.

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