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The Register of Overseas Entities came into force in the UK on 1 August 2022 through the new Economic Crime (Transparency and Enforcement) Act 2022. Lenders will need to be aware of the requirements moving forward, and the consequences of borrowers failing to comply.
The new provisions are contained in Part 1 of the Economic Crime (Transparency and Enforcement) Act 2022 (the Act) which received Royal Assent on 15 March 2022. The Act also contains provisions relating to sanctions legislation and unexplained wealth orders, a review of which is beyond the scope of this note.
Failure to comply could result in a fine or imprisonment. It will also mean that the overseas entity cannot register the sale or purchase of UK property at the relevant land register. Importantly for lenders, security granted in connection with the sale or purchase of UK property will also not be registered if the overseas entity is unable to provide the relevant land register with its OEID.
An overseas entity is any entity that is governed by the law of a country or territory outside of the UK. This can include any company, partnership or other legal entity provided it is recognised as a legal person by the law of its governing jurisdiction. This captures entities in, for example, the Channel Islands and the Isle of Man, provided they are recognised in those jurisdictions as having a separate legal personality. An individual, even if living abroad, will not be an overseas entity (although they could be a registrable beneficial owner (as defined below)).
As trusts do not have separate legal personalities, a non-UK trust holding Relevant Property will not have to obtain an OEID and maintain the ROE.
However, there a number of caveats to this, and care must be taken to ensure compliance:
1. the non-UK trust must maintain its register of beneficial owners, and register the trust on the UK Trust Registration Service (as maintained by HMRC);
2. if the trustee of a non-UK trust holding Relevant Property is an overseas entity (i.e. a non-UK corporate trustee), the trustee itself will be caught by the definition of “overseas entity” and will need to register at the ROE;
3. if the registrable beneficial owner of an overseas entity includes a trustee, certain additional information may need to be submitted to Companies House (and will be available to HMRC).
A registrable beneficial owner is an individual, legal entity or government or public authority that satisfies one or more of the following conditions in relation to the overseas entity:
When there is no registrable beneficial owner (or the overseas entity has not been able to identify all registrable beneficial owners), the overseas entity will need to provide certain information about each managing officer of the overseas entity. Managing officers will include directors, managers, or secretaries.
The ROE went live on 1 August 2022. There is now a six-month transitional window ending on 31 January 2023, during which any overseas entity will need to register if it owns (or, in certain circumstances, owned) any relevant property, subject to the property types and time periods shown below:
|Jurisdiction||Relevant property||Relevant time period (for relevant property acquired in the UK on after the following dates)|
|England & Wales||
||on or after 1 January 1999*|
||on or after 8 December 2014*|
on or after 1 August 2022
Any overseas entity which acquired Northern Irish property before 1 August 2022 does not need to register, and will not be prevented from registering the subsequent sale of any such property.Part 1 of the Act has been in full force in Northern Ireland since 1 August 2022 (inclusive) and so the transitional window is not relevant.
*The requirement to register includes those overseas entities who had been registered proprietors during the Relevant Time Period but have since disposed of the property on or after 28 February 2022. This is designed to ensure that properties were not disposed of in advance of the legislation taking effect, and to reduce a bottleneck on registrations.
Land Registration changes will not take effect until Monday 5 September 2022. This means that overseas entities wishing to register acquisitions of Relevant Property between 1 August 2022 and Friday 2 September 2022 (see further explanation of this date below) will not need to already have their OEID. The relevant land register will enter a restriction on title but this will only have an impact at the point the overseas entity decides to make a disposition of the Relevant Property (which includes the sale of the Relevant Property, the granting of a lease of the Relevant Property for longer than a certain period or the granting of a charge over the Relevant Property).
Lenders should ensure that any applications to the relevant land register during the grace period between 1 August 2022 and Friday 2 September 2022 are prioritised, in order to protect their security. Lenders should also be aware that, as 5 September 2022 is a Monday, the grace period effectively ends on Friday 2 September 2022 (provided the application is lodged in time for it be entered on the day list on 2 September 2022), hence the above references to 2 September 2022.
There are specific statutory exemptions which will permit the registration of a disposition without the need to comply with the restriction in the following circumstances:
*The regulations which will set out what this exception means have not yet been made, and therefore the extent and scope of this particular exception is not yet known.
|Overseas Entity*||Action Required||Consequences of failing to act||Land Register restrictions|
|Overseas entity first acquisition of Relevant Property between 1 August 2022 and 2 September 2022||Grace period granted by Land Registers means applications for the OE to be registered as the proprietor will be accepted until 2 September 2022 without an OEID. Care should be taken to ensure this deadline is met.||There is still a risk that an application is cancelled by the relevant land register. In these circumstances, a new application would have to be made and, if this is on or after 5 September 2022, an OEID will need to be provided.||The relevant land register will enter a restriction on title but practically this will only have an impact at the point the overseas entity decides to make a disposition of the property (which includes the sale of the Relevant Property, the granting of a lease of the Relevant Property for longer than a certain period or the granting of a charge over the Relevant Property).|
|Overseas entity first acquisition of Relevant Property due to take place on or after 5 September 2022||Immediate action will be required. Overseas entity must be registered on the ROE at the time of the relevant land register application.||
Failure to comply will result in transaction not being registered and will not take effect at law.See updated land register forms which include a box for the OEID to be inserted.
The relevant land register will enter a restriction on title.Restrictions on title will have effect immediately on entry onto the register.
|Overseas entity with existing Relevant Property||Must have obtained an OEID, updated the ROE and notified the relevant land register by 31 January 2023.||Failure to comply is a criminal offence punishable by imprisonment and/or a fine.||
The relevant land register will enter a restriction on title.Restrictions on title will not take effect until 1 February 2023.
|Overseas entity which held interest in Relevant Property (in England & Wales, or Scotland) on 28 February 2022 but does not own any Relevant Property by 1 February 2023||Must have obtained an OEID and updated the ROE by 31 January 2023.||
Failure to comply is a criminal offence punishable by imprisonment and/or a fine.
*In Scotland, the Land Registration (Scotland) Act 2012 has been amended so that the keeper must reject applications if the overseas entity does not provide their OEID at the time of the registration application. While outside the scope of this note, it is important to note that there are separate obligations in Scotland relating to the Register of Persons Holding a Controlling Interest in Land (RCI). At present, overseas entities within the scope of the RCI must register at the RCI, irrespective of having registered at the ROE.
Owners of registered mortgages will be able to enforce their mortgages (and sell or appoint a receiver to sell the mortgaged property) where the provisions of the Act have been complied with, without the need to comply with the restriction.
However, lenders should note that failure by an overseas entity to comply with the requirements of the Act will mean that new dispositions of relevant property cannot be registered in the first place. “Disposition” includes the grant of a legal charge over the property. So, if a lender takes a charge over a property owned by an overseas entity, the charge will not be registered at the relevant land register unless (i) the overseas entity is able to provide its OEID; or (ii) it is an exempt overseas entity; or (iii) one of the other exceptions apply.
If fixed security is not registered on the title to the property then this can cause serious issues for the lender around the validity, enforceability and priority of the relevant security.
At present there is very little detail about the implications of the Act for enforcement by security holders/secured lenders.
Lenders will need to identify which parts of their existing portfolio are affected by the new requirements, and take steps to ensure borrowers register their details and keep the registration updated.
Lawyers should be asked to provide specific advice on the impact of the new requirements for transactions involving property in England, Wales and Scotland and completing between 28 February 2022 and 1 February 2023.
Lawyers should be aware of how the provisions of the Act operate differently across the three UK jurisdictions.
Standard form documentation may need to be amended to include appropriate contractual obligations and default triggers relating to the new statutory registration requirements:
Partner, Banking & Restructuring Bristol
26 August 2022
Insights 05 JANUARY 2023