Register of Overseas Entities – Register now to keep transactions running smoothly
The Economic Crime (Transparency and Enforcement) Act 2022 ("the Act") has been enacted as part of the Government's drive to increase transparency in the ownership of UK land.
Companies and other legal entities governed by the law of a country or territory outside of the UK which own land in the UK satisfying certain requirements, or wish to own such land, must now register information with Companies House. A new Register of Overseas Entities ("the ROE") has been created and certain details of the registered overseas entities and their beneficial owners are available to the public.
An overseas entity is within the scope of the ROE if it owns land purchased:
a) in England and Wales on or after 1 January 1999;
b) in Scotland on or after 8 December 2014; and
c) in Northern Ireland on or after 1 August 2022.
This blog focuses on the law as it applies in England and Wales but, similar regimes apply in Scotland and Northern Ireland.
In England and Wales the Act applies to overseas entities which own or will acquire "qualifying estates". Such estates are freehold estates in land or leasehold estates in land originally granted for a term of more than seven years at the date of grant.
Overseas entities that have owned a qualifying estate from 1 January 1999 have until 31 January 2023 to register with Companies House.
When registering, an overseas entity will need to disclose details about their beneficial owner(s) (if any) and/or managing officer(s) to Companies House. Such information will then be published on the ROE and the relevant entity must update the information annually and no later than 14 days after the anniversary of the date that the overseas entity was registered.
From 1 August 2022, new purchasers of qualifying estates must register with Companies House and obtain an Overseas Entity ID number. From 5 September 2022 it will not be possible to register title with the Land Registry without an Overseas Entity ID.
Dispositions of Qualifying Estates after 28 February 2022
If an overseas entity makes an application for registration on or before 31 January 2023, it must also confirm whether or not it has made a "relevant disposition" of a qualifying estate since 28 February 2022. Relevant dispositions broadly include:-
b) grants of leases for a term of more than 7 years at the date of grant; and
c) legal charges.
If a relevant disposition has been made since 28 February 2022 then additional information about the disposition must be included.
Any overseas entity that has made a relevant disposition since 28 February 2022 must make a statement to Companies House about the disposition and include information about the land in question, even if that overseas entity is not required to register with Companies House as it no longer owns a qualifying estate.
So, by way of example, assume an overseas entity was registered as a freehold proprietor of land in England in March 1999. If the overseas entity did not own any other qualifying estates and disposed of the land in March 2022, the overseas entity would not be required to register with Companies House. However, the entity would be required to provide Companies House with a statement about the disposition, including information about the land in question.
The Registration Process
The determination of beneficial owners is based on the regime of People with Significant Control already in place for UK incorporated companies. Whilst detailed guidance about the registration process and how to identify beneficial owners or those with significant influence or control has been published by BEIS, detailed consideration of the Act and its accompanying regulations is critical in order to ensure that the process is followed correctly.
Once the overseas entity has gathered the required information, the information needs to be verified by an appropriate professional prior to submission. In-house solicitors are not able to conduct verification on behalf of the overseas entity which employs them. The application can made online for a fee of £100 and Companies House is required to respond within 7 days.
Once the required information has been provided and verified, the overseas entity will be registered by Companies House and an Overseas Entity ID will be provided. This ID must be provided to the Land Registry whenever the overseas entity buys, leases, transfers or registers charges involving a qualifying estate. Even where an ID number is provided to the Land Registry, applications will not be processed if the overseas entity is not compliant at the time of any application, for example, because it has failed to provide an annual update to Companies House.
Consequences of Failure to Register
If an overseas entity which is required to register fails to do so before 1 February 2023, the entity and every officer of the entity commits a criminal offence. Failure to keep the register up to date and provide an annual update to Companies House is also a criminal offence. There is a daily default fine of £2,500. A person found guilty of an offence may also be liable to a fine, imprisonment or both.
The overseas entity will also be unable to register any dispositions of qualifying estates with the Land Registry.
What Steps Should Be Taken Now?
1. Property Portfolio Review
Any overseas entity owning or leasing real estate in the UK should immediately review its portfolio to identify whether or not any of its property is a qualifying estate.
2. Identify Beneficial Owners
Before an application to be registered on the ROE can be made, reasonable steps must be taken by the relevant entity to identify its beneficial owners and obtain information about those beneficial owners. Entities are able to serve information notices on persons they have reasonable cause to believe are their registerable beneficial owners. Any person served has a month to respond to the notice. These potential delays need to be factored in when gathering information to ensure that any applications for registration can be made in good time.
3. Verify information
The information accompanying any application for registration must be verified prior to the application being made. Verification can only be carried out by appropriate professionals. The process can take a significant amount of time where dealing with a complex entity and sufficient time must be allowed.
4. Look back at transactions since 28 February 2022
As stated above, an overseas entity will also need to provide information about disposals of qualifying estates since 28 February 2022 irrespective of whether they need to register on the ROE.
5. Register now
Once the relevant information has been gathered and verified, make any applications to register as soon as possible to avoid the expected bottle necks at Companies House and to ensure future transactions can proceed smoothly. Ensure the requirement to provide an annual update is appropriately diarised.