Register of Overseas Entities: a practical summary for lenders

In summary:

• any overseas entity which owns or wishes to purchase UK property is now required to register its details, and the details of its beneficial owners, at Companies House on the Register of Overseas Entities (the ROE);
• the information provided will need to be verified by a relevant person (who has already obtained an assurance code from Companies House);
• it will then be given an overseas entity ID number (OEID);
• the relevant land register (being the Land Registry in England and Wales, the Registers of Scotland, or the Land Registry in Northern Ireland) will use the OEID to deal with any registrations;
  the relevant land register will enter a restriction on title to any property owned, which will prevent dispositions unless the ROE registration is up to date; and
• details on the ROE must be updated annually.

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:

• they hold, directly or indirectly, more than 25% of the shares; and/or
• they hold, directly or indirectly, more than 25% of the voting rights; and/or
• they hold the right, directly or indirectly, to appoint or remove a majority of the board of directors; and/or
• they have the right to exercise, or actually exercise, significant influence or control over the overseas entity; and/or
• they have the right to exercise or actually exercise significant influence or control over the activities of a trust, partnership, unincorporated association or entity that is not a legal person under the law by which it is governed, and the trustees of that trust or members of that other entity meet one or more of conditions 1-4 above.

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:

*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 disposition is made in pursuance of a statutory obligation or court order, or occurs by operation of law;
• the disposition is made in pursuance of a contract made before the restriction is entered in the relevant land register;
• the disposition is made in the exercise of a power of sale or leasing conferred on the proprietor of a registered charge or a receiver appointed by such proprietor;
• the disposition is made by an insolvency practitioner in circumstances to be prescribed by regulations*.

*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.

*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:

• in England, Wales and Scotland: once the grace period ends on 5 September 2022, compliance with the Act will be a non-negotiable requirement for all new lending and security; and
• in Northern Ireland, Part 1 of the Act is now in full force.