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This legislation follows on from the introduction of the 'People with Significant Control' (PSC) regime, which was introduced for UK companies in 2016. Essentially this aims to find out who controls, or has significant influence over, a company.
The new requirements for overseas entities that hold UK property are part of the battle against the use of UK property as a vehicle for money laundering. It is hoped that, by requiring overseas entities who own UK property, to register information about the parties that control them, UK property will not be seen as an attractive prospect for those with illegitimate intentions.
Overseas entities who own UK property will need to submit prescribed information to the Registrar of Companies for England and Wales. That prescribed information includes company registration details such as the entity’s name, incorporation details, address and contact details. Beneficial owners of overseas entities must also be registered, and provide prescribed information which includes their name, address and the date on which the entity became a registrable beneficial owner in relation to the overseas entity. Much like the current PSC regime for companies, a person will be considered a “beneficial owner” of an overseas entity or other legal entity if at least one of the following applies:
Ownership of shares: directly or indirectly hold more than 25% of the shares in an overseas entity;
Voting rights: directly or indirectly hold more than 25% of the voting rights in an overseas entity;
Right to appoint or remove directors: directly or indirectly hold the right to appoint or remove a majority of the board of directors of an overseas entity; or
Significant influence or control: have the right to exercise, or actually exercise significant influence or control over the overseas entity.
Once the relevant information is disclosed, and Companies House has made the necessary verification, the overseas entity will be issued an overseas entity ID and that ID will be recorded in the OER. This ID is then used by the Land Registry to show that the overseas entity is a registered overseas entity and to deal with any registrations. Details on the OER must be updated annually, similar to how companies must deliver a confirmation statement every year.
There are transitional provisions for those overseas entities that already own UK property. However, what an overseas entity needs to do during that period will depend on whether the land is held in England & Wales, in Scotland or in Northern Ireland. The definition of ‘qualifying estate’ also differs depending on where the land is held.
In England & Wales, there will be a grace period of 6 months for the overseas entity to register and the Act applies retrospectively to any freehold property, or leasehold interest of more than seven years, of which the entity became the registered proprietor on or after 1 January 1999. The 6 month transitional period has not yet started, and will be specified in regulations which are expected to be passed imminently.
In Scotland the grace period is also 6 months but the relevant property is where the entity had an interest registered on or after 8 December 2014.
In Northern Ireland the requirements will only affect transactions taking place after the register opens. It is also important to note that, in Northern Ireland, the obligation to register only applies to owners of freehold estates and leasehold interests of more than 21 years so is far more limited than the requirement in England and Wales.
A failure to register or the provision of false information is an offence punishable by a fine or imprisonment. Overseas entities must take reasonable steps to identity their registrable beneficial owners including the service of information notices. Failure by a person to respond to an information notice is an offence punishable by a fine or imprisonment (or both). Failing to keep details on the OER updated is also an offence for which a fine can be imposed.
Additionally, an overseas entity not registered on the OER will be unable to register its ownership of a property that it purchases at the Land Registry (or Land Register in Scotland), or sell property to a third party.
This will be controlled via the land registration systems of each of the UK jurisdictions.
In England & Wales, a restriction will be placed on the title register of the property. Where a disposition is made by an overseas entity that should be registered on the OER, but is not, that disposition will not be registered at the Land Registry. That entity will therefore not have legal title to the property - an issue for both it as a seller and any prospective purchaser.
Breaching the legislation by disposing of a property that is subject to a restriction, or making a disposition of property when the entity should be registered (but is not) is an offence.
A party buying property from an overseas entity will need to carry out detailed due diligence to ensure that the overseas entity has complied with the requirements of the Act. Where a restriction has been put on the title, this will be clear to see. However, if there is no restriction, the purchaser cannot just assume that all is in order. Whilst the Act provides that a disposition in breach of the legislation will not affect the validity of the disposition, this will not be of much comfort to a purchaser who cannot register its purchase at the Land Registry. There are limited circumstances in which a disposition by an overseas entity that has not complied with the OER registration requirements can be registered. Examples include:
Where the overseas entity is an ‘exempt overseas entity’. The details of what falls within this definition is not yet available; it will be specified in future regulations.
Where the disposition is made in pursuance of a statutory obligation or court order, or occurs by operation of law.
Where the disposition is made in pursuance of a contract made before the restriction is entered on the title.
Where the disposition is made by a specified insolvency practitioner in specified circumstances. What constitutes a ‘specified insolvency practitioner’ and ‘specified circumstances’ are both to be set out in future regulations.
Where the disposition is made in the exercise of a power of sale or leasing conferred on a registered chargeholder or their receiver.
It is also open to the Secretary of State to give consent to register an otherwise non-compliant disposition if they are satisfied that at the time of the disposition the person to whom it was being made did not know, and could not reasonably have known, of the prohibition, and it would be unjust for the disposition not to be registered. It is expected that this provision will be employed very infrequently.
A similar system will be put in place in Northern Ireland, with the use of an inhibition (which is the equivalent of a restriction) on the folio at the Land Registry. The circumstances in which an overseas entity that has not complied with the OER registration requirements can be registered are broadly in line with those in England and Wales.
In Scotland, the Land Register must reject an application for registration of a qualifying deed where the overseas entity would become the registered proprietor or tenant of land unless the overseas entity is a registered or exempt overseas entity (or the deed relates to a lease or assignation of a lease which consists of or forms part of unregistered land). Broadly similar limited exceptions to those listed above where registration can still occur also apply. It is hoped that the Scottish Government will amend the scope of the new Register of Persons Holding Controlled Interests in Land which is to be operational from 1 April 2022 to remove non-UK entities and avoid duplication of reporting requirements.
The Act will have a huge impact not only on overseas entities that own UK property (who will need to ensure that they have the administrative procedures in place to comply with the Act), but also on those considering buying property from an overseas entity. Due diligence will be key. It also remains to be seen how the Land Registry in England and Wales will manage the process of putting restrictions on large numbers of titles during the transitional period, which was reduced from 18 months to 6 months during the passage of the Act through Parliament. The Land Registry of Northern Ireland may also find the requirements of the Act challenging, given current resourcing issues.
TLT have real estate experts across the UK, which means we can advise in the three UK legal jurisdictions of England & Wales, Scotland and Northern Ireland.
Contributors: Alexandra Holsgrove Jones, Adrienne Quin, and Kevin Murphy
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2022. Specific advice should be sought for specific cases. For more information see our terms & conditions.
29 March 2022