The Government has for some years been toying with the idea of setting up a register of non-UK property owning companies and their underlying owners. Doubtless prompted by the invasion of Ukraine, legislation of this nature has been rushed through parliament and the Economic Crime (Transparency and Enforcement) Act 2002 received royal assent on 15th March 2022.
The Act is in three parts. Part 1 deals with registration requirements for overseas entities already holding, or about to hold, land in the UK and this article concentrates on this part. The two remaining parts concentrate on changes to unexplained wealth orders and sanctions.
The Act refers throughout to an “overseas entity”. This means a legal entity (a company, partnership etc) that is governed by the law of a non-UK territory. Companies House is required to keep a register of all overseas entities which effectively already own land (unless registered before 1st January 1999) in the UK or which in the future come to own land in the UK. Certain prescribed information has to be given to Companies House before it can become a “registered overseas entity”. Broadly, the information to be given comprises details about the entity itself as well as disclosure of its beneficial owners or, if there are no qualifying beneficial owners, statements to that effect. A beneficial owner is a person who directly or indirectly holds over 25% of the shares or voting rights in the overseas entity. There are other components of what a beneficial owner means which relate to the right to appoint or remove the board of directors or to general control.
The requirement to register at Companies House must be made within 6 months of the Companies House register being set up. This is expected imminently.
Once registered, there are further requirements for updating. Failure to register, or failure to update, carries sanctions which could include imprisonment and default fines of £2,500 per day. The sanctions can be levied against the entity itself and any officer of the entity who is in default.
For an overseas entity which is now proposing to acquire land in the UK, the Act means that it must become such a registered overseas entity before title to the property can be registered at the Land Registry. This will have repercussions for not only those entities themselves, but also the banks and other lending institutions which fund acquisitions by them. It remains to be seen how efficiently applications for registration at Companies House will be dealt with. Acquiring registered overseas status at Companies House will therefore be a critical factor in current and future acquisition transactions. Banks are unlikely to advance funds without notice of registration having been given by Companies House (which the Act obliges it to do). This regime will apply to acquisitions of freehold and leasehold interests of more than 7 years.
Where a freehold title or a leasehold title, where the lease was originally for more than 7 years, was registered at the Land Registry on or after 1st January 1999, the Land Registry must enter a restriction on the title. The restriction will prohibit most types of disposition (which will include sales, lettings and mortgages) unless the entity is a registered overseas entity. There are limited exceptions which arise in special cases.
These provisions will clearly affect overseas organisations which already own property in the UK. The clear advice is to make the appropriate application to Companies House for registration sooner rather than later so that, once registered, the entity’s pre-Act powers of disposition are effectively restored.
The legislation will also have a practical impact on persons dealing with overseas entities. They will need to be alive to possible fetters on powers of disposition and to ensure contractual arrangements are in place for Land Registry restrictions to be complied with.
Slightly different arrangements apply to land in Scotland and Northern Ireland, but the overarching objective of achieving transparency of ownership remains in those jurisdictions as well.