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New Zealand Law Commission - Government Responses |
Last Updated: 18 September 2016
Regulatory Impact Statement
Law Commission Report – A New Land Transfer Act
AGENCY DISCLOSURE STATEMENT
This Regulatory Impact Statement was prepared by Land Information New Zealand
(“LINZ”). It provides an analysis of options
to implement the
recommendations from the Law Commission Report A New Land Transfer Act
(NZLC 116).
On 20 July 2010, the Commission tabled the report A New Land Transfer Act
(“the report”) in the House. The report resulted from the
Commission’s comprehensive review of the Land Transfer
Act 1952 in
conjunction with LINZ and with input from the Ministry of Justice.
The report makes 25 recommendations, and includes a draft Land Transfer Bill,
intended to modernise, simplify and consolidate the
land transfer legislation
for enhanced clarity and accessibility. The overall effect would be to retain
the fundamental principles
of the existing system (registration as a
prerequisite for the acquisition of legal title and State-guarantee of title)
subject to
some changes to ensure that people continue to be secure in their
property ownership. These include a limited judicial discretion
to order
alteration of the register in cases of “manifest injustice” and
requiring mortgagees to take reasonable steps
to verify the identity of
mortgagors.
The analysis covers three options for implementing the report: status quo, partial implementation and full implementation. Key assumptions are that there will be no or negligible compliance costs associated with full implementation (implementing all of the Commission’s recommendations) and that the government will have to make a very compelling case for not accepting all of the Commission’s recommendations.
The related constraints are the requirements under Cabinet Circular CO (09) 1
for responding to Law Commission reports. The key dependency
is the Anti-money
Laundering and Countering Financing of Terrorism Act 2009 – the analysis
explores the inter-relationship
between the customer identity verification
requirements under that legislation and the mortgagor identity verification
requirements
proposed for the new Land Transfer Act.
None of the policy options are likely to have the effects that the government
has said will require a particularly strong case before
regulation is
considered.
Cindy O’Brien, Senior Policy Analyst, Land Information New
Zealand.
STATUS QUO AND PROBLEM DEFINITION
The status quo
The Land Transfer Act 1952 (“the LTA”) and its two stand-alone amendment Acts (Land Transfer Amendment Act 1963 and Land Transfer (Computer Registration and Electronic Lodgement) Amendment Act 2002) make up the legislative framework that governs land transfer registration and transactions. Almost all privately owned as
well as some Crown land is held and transacted under this legislative
framework.
The Law Commission led a review of the LTA in conjunction with Land Information New Zealand (“LINZ”) and with input from the Ministry of Justice. The Commission presented the report A New Land Transfer Act to ministers in June 2010 and on 20
July 2010, the report was tabled in the House. The report included a draft
bill. The Minister for Land Information is required under
Cabinet Circular CO
(09) 1 to report to Cabinet within 120 days of the Law Commission report being
tabled in the House on whether
to accept the Commission’s
recommendations.
There is no cost advantage in retaining the status quo – the preferred
option is expected to result in no or negligible compliance
costs.
The problem
The current legislation is out of date in relation to both form and
substance. It has not kept pace with technological and other
changes that have
occurred since its enactment in 1952. Some of the provisions lack clarity and
are inconsistent with current practice
while others are being used for purposes
for which they were not originally intended. The LTA is focussed on paper-based
land registration
(the registration system is almost exclusively electronic) and
was not designed to counter problems such as increasingly sophisticated
forms of
mortgage fraud. The strict application of the principle of indefeasibility of
title can, in rare cases, have harsh consequences.
OBJECTIVES
It is proposed that Cabinet approves the Commission’s recommendations and agrees that drafting instructions be issued to the Parliamentary Counsel Office for a bill
based on the Commission’s draft Land Transfer Bill.
The objectives of implementing the Law Commission’s recommendations are
to:
• introduce measures to enhance security of property
ownership.
REGULATORY IMPACT ANALYSIS
Alternative options
Status quo
If the status quo is retained, New Zealand will remain in the incongruous position of having a state of the art electronic land title registration system regulated by legislation that is almost 60 years old. The government will have to report to the House on its reasons for not accepting the Commission’s recommendations (Cabinet
Circular CO (09) 1 refers). It is difficult to envisage what those reasons
might be - the Commission’s proposals were widely
supported by submitters
on a publicly-available issues paper, the general consensus is that the proposed
overhaul of the LTA is long
overdue and we expect compliance costs to be nil or
negligible. The status quo is therefore not the preferred option.
Partial implementation of the Commission’s
recommendations
An alternative option is to implement only some of the Commission’s 25 recommendations. The Government would have to report to the House on its reasons for not accepting all the Commission’s recommendations. While this option
might be desirable if individual recommendations were particularly costly or otherwise problematic to implement, we have not identified any recommendations that meet
this criteria. This option is not preferred because dispensing with
individual recommendations would compromise the overall effectiveness
of the
proposed reforms.
Preferred option
The preferred option is to implement all of the Commission’s recommendations via a
Land Transfer Bill to be introduced next year with a view to enactment by the end of
2011. On this timing the legislation would be brought into effect by the end
of 2012. The bill would:
COSTS AND BENEFITS
Costs
We expect there to be no or negligible compliance costs to industry in
relation to these proposals. Lawyers, conveyancers and legal
executives will
not be subject to any additional requirements under these proposals.
Banks and non-bank financial institutions will be subject to a new
requirement for mortgagees to take reasonable steps to verify the
identity of
mortgagors. However, mortgagees will be able to meet this requirement by
complying with the customer identity verification
provisions under the
Anti-money Laundering and Countering Financing of Terrorism Act 2009 (the
“AML/CFT Act”).
We propose to dovetail the implementation of this requirement with the implementation of the AML/CFT Act and its regulations and industry codes of
practice so that mortgagors are not required to incur any compliance costs
under the new Land Transfer Act additional to those incurred
under the AML/CFT
Act. Waiting for the AML/CFT legislation to be finalised will enable us to
avoid imposing unnecessary costs through
misalignment of the two legislative
regimes. This might mean that some provisions of the new Land Transfer Act come
into effect
before others.
There are expected to be no compliance costs to the Crown in relation to
these proposals.
Benefits
A clearer legislative framework, premised on electronic registration, would assist in the efficient administration of the land transfer system. The clarification the Bill would provide as to the nature of a landowner’s registered title, the extent of any
exceptions, the scope of the compensation regime and the Registrar’s
powers of correction should provide more certainty and
minimise the potential
for disputes and litigation on these matters. This benefits anyone who deals
with or has an interest in land,
including owners, vendors, purchasers, lessors,
lessees, and the intermediaries who facilitate land transfer transactions
(lawyers,
conveyancers, legal executives and financial institutions).
The limited judicial discretion to restore a registered land owner’s
title lost through fraud or other illegality by another
party will benefit
affected owners and maintain confidence in the land title system.
The requirement for mortgagees to take reasonable steps to verify the identity of mortgagors, will reinforce existing obligations in that regard under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009. It puts appropriate incentives in place for mortgagees to exercise due diligence when establishing the bona fides of a prospective mortgagor. In the event of identity fraud, a mortgagee who has failed to discharge these obligations will not be entitled to enforce the mortgage or seek compensation from the Crown. It therefore benefits registered land
owners and potential purchasers by addressing the risk of mortgage fraud and
providing greater certainty of ownership.
There are also legislative and non-legislative measures intended to provide
information and guidance about the interface between the
LTA and other
land-related statutes. These will benefit all participants in the land market
as well as the agencies that administer
the legislation.
CONSULTATION
The Law Commission consulted widely during its review of the LTA. Public
consultation occurred via submissions on the issues paper
Review of the Land
Transfer Act 1952 (NZLC IP 10, Wellington, 2008). The Commission also engaged
in targeted stakeholder consultation
with industry groups, including the NZ Law
Society and the NZ Bankers’ Association.
LINZ consulted the following industry stakeholders on these proposals: the
New Zealand Law Society, Auckland District Law Society,
New Zealand
Bankers’ Association, Financial Services Federation, New Zealand Society
of Conveyancers and the Institute of Legal
Executives. Consultation occurred
via submissions on the report and meetings with those who wanted to discuss
their submissions.
We also consulted the following government agencies on these proposals: the
Ministry of Justice, Te Puni Kokiri, Treasury, the Crown
Law Office and the Law
Commission. The State Services Commission and the Department of Prime Minister
and Cabinet were informed
of this paper.
Industry stakeholders are generally very supportive of the proposals and the
Commission’s draft bill. The proposal of most
concern to industry is the
requirement on mortgagees to verify the identity of mortgagors. These concerns
include:
• uncertainty for mortgagees around what constitutes “reasonable
steps”;
The proposals were altered to address these concerns by providing for the new Land Transfer Act identity verification requirements to come into force by Order in Council after the AML/CFT regulations and industry codes of practice have been finalised. The AML/CFT standards can be adopted by deeming compliance with them (with or without modification) as compliance with the new Land Transfer Act requirements.
The legislation will also reflect that the transferee of a mortgage will be
in no better position than the original mortgagee if the
latter failed to comply
with the mortgagor identify verification requirements when that mortgage was
created.
We will continue to liaise with the Ministry of Justice on the development of
the AML/CFT regulations and industry codes of practice
to ensure that both sets
of identity verification standards are as closely aligned as possible.
Government agencies are also supportive of the proposals. There was only one area where the proposals were changed following consultation – the Commission’s recommendation that an in-depth review be carried out in relation to the registration
of Maori land. We consulted Te Puni Kokiri and the Ministry of Justice on this proposal and all agencies agreed that some initial scoping work should be done before committing resources to an in-depth review largely because work in this area has progressed since the Commission finalised its report and some of the problems identified at the interface of Te Ture Whenua Maori Act 1993 and the LTA have or
are being resolved. The Law Commission is comfortable with this modified
approach to the recommendation.
IMPLEMENTATION
A transitional period of 12 months from enactment to implementation is
proposed for the legislation intended to give effect to the
Commission’s
recommendations. This is to allow sufficient time for:
MONITORING, EVALUATION AND REVIEW
The operation of the new act will be monitored by LINZ as part of its business as usual internal audit and reporting requirements. There are no plans to proactively review the primary legislation. LINZ expects that any issues with the effectiveness of the system will be picked up in the monitoring outlined above. The subordinate legislation will be reviewed as part of the ongoing LINZ regulatory scan under the Government’s Regulatory Review Programme.
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