Due Diligence for Land Buyers

Buying land that’s registered in the ETS — or that should be — requires careful due diligence. Carbon liabilities can transfer with the land, and failing to understand these obligations before purchase can be costly.

Why This Matters

Carbon liabilities follow the land, not the previous owner. If you buy land registered in the ETS, you automatically inherit:

There have been cases of buyers discovering after settlement that they have significant carbon liabilities from previous clearing or non-compliance.

Key Checks Before Purchase

1. Certificate of Title

Under section 195 of the Climate Change Response Act, ETS status must be recorded on the land title.

Look for notices indicating:

Important: Even if there’s no notice, the land may still have obligations. Pre-1990 forest status exists regardless of title notation.

2. ETS Registration Status

Confirm with MPI:

3. Pre-1990 Forest Assessment

Critical question: Was there forest on this land on 31 December 1989?

If yes, and it’s been cleared, there may be deforestation liability — even if years have passed and no one has enforced it.

Check:

4. Carbon Liability Calculation

If land has been cleared:

Example: 50 hectares of pre-1990 pine forest cleared without compliance could represent liability of $1-2 million or more.

5. Grant Restrictions

Previous owners may have received grants with ETS restrictions:

Grant ProgrammeETS Restriction
Afforestation Grant Scheme (AGS)No ETS registration for 10 years
One Billion Trees Fund (1BT)No pine ETS registration for 6 years
Erosion control grantsMay have conditions

If restrictions apply, you cannot register until they expire.

6. Forestry Rights and Leases

If someone else holds a forestry right or lease:

Transfer Obligations

If you’re buying ETS-registered land:

Seller’s Obligations

The seller should:

Buyer’s Obligations

As the buyer, you:

What If the Seller Doesn’t File?

Even if the seller fails to submit transfer documents, if you buy registered post-1989 land, you automatically inherit the obligations. The law is clear: the new landowner becomes responsible.

Red Flags

Watch out for:

Price Discounts Without Explanation

If land is priced below market, there may be hidden carbon liabilities. A “bargain” could come with millions in obligations.

Cleared Forest with No Documentation

If land shows evidence of recent forest removal but no deforestation compliance documentation, investigate before purchasing.

Lapsed Compliance

If the current owner hasn’t filed emissions returns or paid fees, you may inherit penalties as well as substantive obligations.

Incomplete Title Information

If ETS status isn’t on the title but should be, there may be compliance failures that create risk.

Vendor Reluctance to Provide Information

A legitimate seller should be willing to provide complete information about ETS status and carbon position.

Protecting Yourself

In the Sale Agreement

Include provisions for:

Professional Advice

Engage:

MPI Verification

Contact MPI directly to confirm:

Don’t rely solely on the vendor’s statements.

Pre-1990 Forest: Specific Risks

Pre-1990 forest carries particular risks:

Deforestation Liability

If you clear pre-1990 forest (or it’s been cleared), you must surrender NZUs equal to the carbon released. At $60/NZU, this could be $20,000-40,000+ per hectare.

Exemptions May Not Apply

Historical exemptions (like the 50 ha exemption) had application deadlines. You may not be able to claim exemptions the previous owner could have.

No Upside, Only Downside

Pre-1990 forest cannot earn NZUs — only liabilities apply. The only carbon outcome is potential liability if deforested.

Replanting Avoids Liability

If you replant after harvesting pre-1990 forest, there’s no deforestation liability. But if you convert to pasture or other use, full liability applies.

Post-1989 Forest: Considerations

For post-1989 registered forest:

Unit Balance

Settlement should reflect the carbon position.

Averaging vs Stock Change

Understand which method applies.

Permanent Category

If registered as permanent forest:

Valuing Carbon in Land Purchases

When assessing purchase price:

Carbon Assets

Post-1989 forests with positive unit balances have value:

Carbon Liabilities

Factor in:

Net Position

Carbon-adjusted land value = Base land value + Carbon assets − Carbon liabilities

Settlement Process

At settlement:

Documentation

Ensure you receive:

Unit Balance Settlement

Options include:

MPI Notification

Confirm transfer is properly registered with MPI. Until this happens, obligations may be unclear.

Common Mistakes Buyers Make

  1. Assuming title tells the whole story — ETS obligations can exist without title notation
  2. Not verifying with MPI directly — relying on vendor representations
  3. Ignoring pre-1990 forest status — assuming no forest history
  4. Undervaluing compliance costs — annual fees, returns, professional costs
  5. Not adjusting for carbon in price — treating it as separate from land value
  6. Missing grant restrictions — purchasing then finding ETS registration blocked

Key Takeaways

  1. Carbon liabilities transfer with land — you inherit what the previous owner had
  2. Check the title, but don’t stop there — verify with MPI directly
  3. Pre-1990 forest carries significant risk — clearing liability can be substantial
  4. Get professional advice — legal, forestry, and carbon expertise
  5. Include protections in the sale agreement — warranties, disclosures, indemnities
  6. Adjust price for carbon position — assets and liabilities both have value

Next Steps

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