The UK has introduced new legislation that requires overseas entities owning land in the UK to register on a new public register and provide details of their beneficial owners. The concept was announced back in 2016 to help tackle financial crime. The Government finally pushed through legislation as part of a package of measures introduced in response to the events in Ukraine. The Economic Crime (Transparency and Enforcement) Act 2022 (the Act) received royal assent on 15 March 2022, but it is not yet in force.
An overseas entity will be required to register details of its beneficial owners and its managing officers on a new public Overseas Entities Register to be maintained at Companies House. The requirements are similar to the current registration requirements at Companies House for Persons of Significant Control (PSCs), but the new requirements go further for trusts. Where a registrable beneficial owner is a trustee, full details of the trust must also be notified to Companies House (but this information will not be available to the general public). In addition, overseas entities will have a duty to update their information annually.
The Act relates to land in the UK, but this alert only deals with the implications for land in England and Wales. The Act also deals with changes to the regimes for unexplained wealth orders and sanctions, which are outside the scope of this alert.
When will the new law apply?
The Government is yet to confirm the date from which the Act will take effect, and this is expected to be published in separate regulations. However, the legislation has immediate relevance. In order to stop the transfer of land before the Act applies, overseas entities must disclose any sales or other dispositions of relevant land made on or after 28 February 2022, together with beneficial ownership information for the entity immediately before the disposition. Accordingly, overseas entities dealing with land should start keeping records now.
Once the Act is in force, there will be a six-month transitional period for initial registration by relevant overseas entities.
What land is affected?
In England and Wales, the new regime will apply to freehold estates in land and leasehold estates granted for terms lasting more than seven years. These are the two estates in land that must be registered at the Land Registry to enable the owner to acquire legal title to the land and subsequently sell it, lease it or use it as security for a loan. Effectively, the mechanics of the regime prevent an overseas entity registering title to land acquired, or disposing of registered land, unless the entity has complied with the obligations to register (and update their entry) on the Register of Overseas Entities. This is expected to drive compliance, as the value and marketability of the land in question will otherwise be severely impacted.
How will real estate transactions be affected?
When an overseas entity acquires a freehold or lease for more than seven years following the commencement date, the freehold or lease will have to be registered (and the entry updated) on the Overseas Entities Register before the entity can apply to register its title to the land at the Land Registry. Both newly acquired registered land and any land owned by an overseas entity since 1 January 1999 will have a formal restriction placed on the title that prevents the registration of a transfer, a lease for more than seven years or a charge. The Land Registry will register the restrictions on existing titles owned by overseas entities during the six-month transitional period.
It will be important for overseas entities acquiring land to ensure they register (and update their entry) on the Overseas Entity Register. Extra due diligence will be required by buyers, tenants and lenders. Contract obligations to register and update may have to be included at certain specific times.
For lenders seeking to enforce existing security held over land owned by an overseas entity, there are saving provisions to protect the enforcement of their security. The Act allows for a number of permitted dispositions that can take place even if the proprietor has not complied with the regime. These permitted dispositions include a sale made in the exercise of a power of sale (and the similar grant of a lease under the power of leasing) and a disposition by a specified insolvency practitioner in circumstances to be specified in regulations.
What information has to be registered?
The object of the Act is to identify and disclose the beneficial owners of overseas entities holding UK land. A corporate entity that is the beneficial owner of an overseas entity can only be registered as the beneficial owner if the corporate entity is “subject to its own disclosure requirements” ‒ the thinking being that the information can then be looked up on the public register for the corporate entity if further investigation is required, and so on up the chain until the individuals at the top are identified. There is a limited list of such entities that includes UK companies and LLPs, certain Scottish partnerships and companies quoted on certain markets in the UK, the EU, Israel, Japan, Switzerland and the USA, as well as other overseas entities that are already included on the register themselves (so their beneficial owners can be seen). For other entities, there will be a need to look up to the registrable beneficial owners behind them, and that will include a government or public authority that meets the beneficial ownership tests. The aim is to identify the people behind the overseas entities.