The Economic Crime (Transparency and Enforcement) Act 2022 has been on the UK’s agenda since 2016. It is fair to say that with the recent developments in Ukraine and Russia, it has become an increasing priority for the UK government.
On the 15 March 2022, the proposed bill reached the royal assent stage of the parliamentary process.
Here, F&F LLP UKRE team look at legal and practical implications this will have on overseas entities owning UK land.
Legal entity here means a body corporate, partnership, or other entity that (in each case) is a legal person under the law by which it is governed.
Creation of Register of Overseas Entities (ROE)
Part 1 of the Act deals with creating a Register of Overseas Entities (ROE), which will provide details of the beneficial owners of all entities that own UK land. The purpose of the register is to prevent the use of UK land as a means of money laundering by overseas entities and to increase transparency about these legal entities.
Whilst a date has not yet been set for the commencement of the register, it has been noted that the UK Government is working at pace now to get the register up and running as soon as possible. The required overseas entities will then have a 6-month transition period to apply to comply with the law and apply to register.
What does this mean for overseas entities?
All entities governed by the law of a country/territory outside of the UK (including Channel Islands) that own UK land will have to apply to be entered onto a register which will be administered by Companies House in the UK. This information will need to be updated annually.
Furthermore, the Land Registry will not register any UK property or land dealings of overseas entities, such as buying, selling, refinancing, granting of leases, unless the overseas entity is on the beneficial owner register, and they have been issued with their own unique ID number.
A restriction on title register will be entered by the Land Registry for all land falling under the requirement of the new legislation to ensure no dealings happen without compliance with the law. There will be some exceptions to this, such as court orders or specific insolvency circumstances, all of which will be detailed further in additional guidance and regulations to be provided by the UK Government when the law comes into force.
Overseas entities will not be able to register at the Land Registry as the owner of a freehold estate in land or of a leasehold of over 7 years, unless they are registered in the register of overseas entities and have duly identified their registrable owners (and/or where appropriate have complied with the statutory duty to update that information - at the time that the application for registration is made to the Land Registry).
The law will also be retrospective and cover all entities that have acquired UK land since 1 January 1999. It must also include any overseas entities that have disposed of UK land from 28 February 2022 to the end of the 6-month transition period.
Who is a beneficial owner?
According to the Act, a beneficial owner is anyone who has significant influence or control over the entity as follows:
- Anyone who holds 25% or more, either directly or indirectly, of the shares;
- Anyone who holds 25% or more, either directly or indirectly, of the voting rights;
- Anyone who has the right to or who does exercise, directly or indirectly, significant control over the entity;
- Anyone who has the right to, directly or indirectly, remove or appoint the majority of board directors.
What will be required to register?
Overseas entities will be required to provide a statement to Companies House advising that the entity has either:
- Identified one or more beneficial owners and can provide the required information about each beneficial owner;
- Has no reasonable cause to believe that it has any beneficial owners;
- Has reasonable cause to believe there is at least one beneficial owner that it has not identified;
- Cannot provide the required information about one or more of the beneficial owners or;
- Has reasonable cause to believe there is at least one beneficial owner that it has not identified and that they cannot provide the required information about one or more beneficial owner.
The information that will be required for the register will always need to include the following information about the overseas entity:
- Country of incorporation or formation;
- 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.
Where a beneficial owner is an individual, the required information about the owner will have to include:
- Name, date of birth and nationality;
- Usual residential address;
- A service address; and
- The date on which the individual became a registrable beneficial owner in relation to the overseas entity.
Where the beneficial owner is a legal entity other than a government or public authority, the required information about the owner will have include:
- 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; and
- The date on which the entity became a registrable beneficial owner in relation to the overseas entity.
What are the implications?
Overseas entities will have 6 months once the new legislation comes into force to ensure compliance in one of the following ways:
- The entity has been registered;
- An application to be registered is in progress or;
- They have evidence that they are an exempt entity.
The consequences of not complying include serious criminal penalties, including fees and up to 5 years custodial sentence. Companies House will also be able to impose civil financial penalties and further sanctions.
Conclusion - what can you do to prepare now?
Whilst further detailed guidance on the register of overseas entities is yet to be provided by the UK Government, it is essential that all required overseas entities should begin their preparation for this now to avoid any criminal or civil penalties.
This process will involve review and collecting of all the required information to enable the registration to take place as early as possible when the register comes into force. This could be quite time-consuming, and onerous process particularly for sophisticated ownership structures.
In addition to the above implications, there are bound to be practical implication on the conveyancing process involving sale of land or grant of a lease by an overseas entity, which has not addressed the requirements of the Act in good time or failed to register.
Until Companies House implements the register, and we see how the sanctions are applied, it remains to be seen how this process will work in practice.
At this end, F&F LLP UKRE team are keeping a close eye on any further legal and practical developments in this regard, and we will be providing further updates on this topic at the right time as things develop but for now - let’s watch this space!
If you need any further information or legal advice, including conveyancing of a property in England & Wales please contact our UKRE team @Anna Douglass, @Alastair Hargreaves or @Caren Vidamour who will be delighted to help.