What do real estate owners need to know?


GREATER TRANSPARENCY IN THE UK REAL ESTATE MARKET

Following the introduction of the Economic Crime (Transparency and Enforcement) Act 2022 (Act) overseas entities (OE) that already own land in the UK, or which intend to acquire land in the UK, will have to register their details, and details of their beneficial owners on a new public register, The Register of Overseas Entities, (OE Register) to be maintained by Companies House.

It is not yet known when the provisions of the Act will come fully into force. There will be a six months' transitional period (calculated from the date the relevant part of the Act comes into force), for an OE that acquired property in England and Wales after 1 January 1999 (or after 8 December 2014 in Scotland), to register on the OE Register. OEs cannot escape registration by disposing of property between now and the end of the six months' transitional period because they still need to register on the OE Register if they owned property on 28 February 2022, irrespective of subsequent disposal. The Land Registry will be obliged to place an OE restriction against the title to all qualifying estates. Understandably, overseas investors and those dealing with OEs are keen to know now what is involved.

WHO NEEDS TO REGISTER? 

  • Any OE that currently holds a freehold or leasehold estate of more than 7 years acquired on or after 1 January 1999 (8 December 2014 in Scotland) (a qualifying estate). 
  • Any OE that intends to acquire a freehold or leasehold estate of more than 7 years.

For the purposes of the Act, an OE means a legal entity that is governed by the law of a country outside the UK (which includes the Channel Islands). It captures non-UK incorporated companies, LLPs, non-UK partnerships with a legal personality or any other entity that is a legal person under the law which it is governed. Whilst non-UK trusts are not ‘overseas entities’ as they do not have a separate legal personality, those that hold UK property indirectly through an OE will be caught.

WHAT IS THE DEADLINE FOR REGISTRATION?

  • Within 6 months of the registration requirements coming into force (Transitional Period) – this will be the commencement date of Part 1 of the Act which is still to be confirmed - the OE with registrable land interests needs to have applied for registration on the OE Register.
  • Failure to comply with the registration requirements by the end of the Transitional Period is a criminal offence. Penalties include fines (of up to £2,500 per day) and custodial sentences (of up to 5 years in prison) or both.

WHAT ARE THE REGISTRATION REQUIREMENTS?

Any OE will be required:

  • to take steps to identify their "beneficial owners" (see below).
  • register information about the OE itself and any registrable beneficial owners of the OE or confirm that it has none.
  • if there is no registrable beneficial owner, to provide details of each managing officer of the OE (which includes a director, manager or secretary).
  • update that information on an annual basis (or confirm that the information on the register is up to date). Failure to update is a criminal offence with sanctions for non-compliance on both the OE and every officer of the OE in default.

Information supplied to the OE Register will be required to be verified. Once registered, an OE ID number will be provided and the OE will be required to update its information annually, until such time as it successfully applies to be removed from the OE Register. An application to remove an OE from the OE Register will only be successful if the OE no longer holds any relevant interests in UK land.

The information on the OE Register will be open to the public, apart from personal data such as dates of birth, residential addresses, contact details and certain information regarding trusts provided where a trustee is the registrable beneficial owner.

To register title to land at the Land Registry, an OE will have to demonstrate it is registered on the OE Register and must comply with the duty to update information.

BENEFICIAL OWNERS

Broadly speaking, a registrable beneficial owner is a person who directly or indirectly holds over 25% of the shares or voting rights of the OE, directly or indirectly holds the right to appoint or remove a majority of the board of directors of the entity or who otherwise has the right to exercise or actually exercise significant influence and control over it (including, for example, through a trust). The UK already holds beneficial ownership information in relation to UK companies and LLPs via the People with Significant Control Register (PSC Regime). The definition of beneficial owner under the Act closely follows the UK's PSC Regime.

Where the registrable beneficial owner is a trustee of a trust (which includes any arrangements outside the UK that are of a similar character to a trust) the information provided as part of the registration must include details on the identity of each beneficiary, settlor or grantor of the trust.

WHAT INFORMATION MUST BE PROVIDED? 

Please see the Appendix for details. 

WHAT EXEMPTIONS APPLY?

There are some exemptions but these are very limited. The Secretary of State may, by giving written notice to a person, exempt the person if satisfied that to do so is necessary: (a) in the interests of national security; or (b) for the purposes of preventing or detecting serious crime. In the case of an OE who has provided beneficial ownership information to registers in their own jurisdiction, if the government considers those registers to be equivalent to the OE Register, it may make regulations to exempt these entities.

WHAT IS THE IMPACT ON LAND TRANSACTIONS?
  • An OE will not be entitled to be registered at the Land Registry as the owner of a qualifying estate in the UK unless it has been registered on the OE Register or is exempt from registration at the time of application.
  • During the Transitional Period, the Land Registry must place a restriction on the title to any qualifying estate currently held by an OE (OE Restriction). This will restrict the OE's ability to make a "relevant disposition" of qualifying estate unless it is registered on the OE Register and has complied with its duty to update (some limited exceptions apply). It is understood that the OE Restriction will not take effect until the end of the Transitional Period but this has not been confirmed yet.
  • A "relevant disposition" means:
    • the transfer of a freehold interest;
    • the grant of a lease for more than 7 years (a registrable lease);
    • an assignment or surrender of a registrable lease; or 
    • the grant of a legal charge.
  • During the Transitional Period, when an OE applies for registration in the OE Register, it must include details of any relevant dispositions it has undertaken during the period from 28 February 2022 and ending on the making of the application (or state there have been no relevant dispositions in that period).
  • Where the OE becomes registered proprietor of a qualifying estate during the Transitional Period, it is unclear whether the OE Restriction will only take effect from the end of that period. It is understood that after the Transitional Period, the OE Restriction will take effect and prevent a relevant disposition by the OE unless it is registered in the OE Register and complied with duties to update.
  • If a relevant disposition is made in breach of such a restriction, the disposal will not be capable of registration at the Land Registry and a criminal offence is committed.
  • There are limited exceptions where, for example, the relevant disposition is made pursuant to the exercise of the power of sale by a charge-holder or receiver or by a specified insolvency practitioner or pursuant to a contract made before the OE Restriction is entered on the title register.
  • It is not clear how long it will take to register an OE on the OE Register. The possibility of delays arising from the registration process should be factored into transaction timetables or dealt with via contractual drafting. The OE making the application for registration should gather all required information as soon as possible to enable it to submit its registration application.
  • An OE cannot avoid all disclosure requirements by setting up a UK company (for which the OE is beneficial owner) to acquire land as UK companies must comply with the PSC Register and its disclosure requirements. There may be advantages to using a UK company but further legal advice would be necessary.
APPENDIX

WHAT INFORMATION MUST BE PROVIDED?

The information that must be provided in respect of the OE and its beneficial owners is extensive. The information needs to be verified before it is added to the new OE Register. Companies House will therefore need to put in place verification measures before the OE Register goes live. 

Required information

The OE will be required to provide the following details: 

  • its name, country of incorporation or formation, and its registered or principal office; 
  • a service address; 
  • an email address;
  • the legal form of the entity and the law by which it is governed; and 
  • any public register in which it is entered and, if applicable, its registration number in that register.

The OE will be required to deliver one of three statements about its registrable beneficial owners as well as the required information pertaining to each statement. 

Where a registrable beneficial owner is an individual, the required information includes:

  • their name, date of birth, usual residential address and nationality; 
  • a service address; 
  • the date they became a registrable beneficial owner and the nature of their ownership i.e. which of the conditions has been met; 
  • whether the individual meets that condition by virtue of being a trustee. If the beneficial owner is a trustee then information around the trust needs to be disclosed, such as the name and description of the trust and details of the settlor, grantor and beneficiaries. The trust information will not be made public; and 
  • whether the individual is sanctioned in the UK.

Where there is no registrable beneficial owner or they have not been able to provide the required information, the following information about each managing officer should be provided:

Where the managing officer is an individual, the required information includes: 

  • their name (including any former name), date of birth, usual residential address and nationality; 
  • a service address; 
  • business occupation; 
  • a description of the officer's roles and responsibilities in relation to the OE.

Where the managing officer is not an individual, the required information includes:

  • its name, registered or principal office; 
  • a service address; 
  • the legal form of the entity and the law by which it is governed;
  • any public register in which it is entered and, if applicable, its registration number in that register;
  • a description of the officer's roles and responsibilities in relation to the OE;
  • the name and contact details of an individual who may be contacted about the managing officer.

There are different information requirements depending on the statement provided as well as the type of registrable beneficial owner. 

The OE must make an annual confirmation that the information on the OE Register is correct. If the information previously provided is not accurate, it must provide updated information within a 14 day 'window' after that 12 month update period.

Any person may apply to see the OE Register. However, certain information such as date of birth, residential address and contact details will not be made available for public inspection, nor will certain information regarding trusts which is provided where a trustee is the registrable beneficial owner.

In the absence of a reasonable excuse, it is an offence to fail to comply with an information notice, provide false information in response to such a notice or provide misleading, false or deceptive material to the registrar. Failure to provide the annual update is also an offence and will also impact on the restriction placed on the title. For most offences under the Act, defaulting officers as well as the OE may be guilty. There are daily fines of £2,500 and breaches can carry a prison sentence up to 5 years.

Key contact

Bruce Lightbody

Bruce Lightbody

Partner, Real Estate
Leeds

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