IBB Law

Economic Crime (Transparency and Enforcement) Bill 2022 and the Register of Overseas Entities: Who owns what?

Economic Crime (Transparency and Enforcement) Bill 2022 and the Register of Overseas Entities: Who owns what?

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In 2016, the UK Government made it a legal requirement for all UK companies to maintain a register of “People with Significant Control” and announced plans to establish a register of beneficial ownership information for overseas entities that own or buy UK property.  6 years has passed and frustration in the real estate industry is growing as the register has still not been implemented.

However, on 1 March 2022, the Government introduced a draft Economic Crime (Transparency and Enforcement) Bill 2022 and announced that it will expedite the introduction of the Register as part of the sanctions against Russia and in order to progress the long-term commitment to combatting economic crime.

Who will have to register?

  • Overseas entities that acquire “Qualifying Estates” in the United Kingdom. The company will need to register with the Registrar of Companies before applying to register their title to the estates at Land Registry. On successful registration, Companies House will then provide an ID number to the Company who should then provide the same to Land Registry with their application for registration.
  • A restriction will be placed on the title, preventing the land from being transferred or charged if the registration of the Overseas Entity is not maintained.

What is an “Overseas Entity”?

  • An “Overseas Entity” is defined as a body corporate, partnership or other entity governed by the law of a county or territory outside the UK and is a legal person under the law by which it is governed.
  • Trusts do not have a legal personality, and therefore cannot directly hold land. However, the legal ownership of trust assets including land must either be vested directly in trustees or in a legal entity of some kind. The Act will capture circumstances in which an Overseas Entity is being used by a trust to hold land in the UK by means of the concept of “beneficial owner”

What is a “Qualifying Estate”?

  • A freehold interest or a leasehold interest granted for a term of more than 7 years from the date of grant.

What is a “Beneficial Owner”?

  • Beneficial owners will be identified using similar criteria as for people with significant control under the current UK PSC regime.
  • Where an Overseas Entity does not have share capital, a reference to holding shares in that entity is a reference to holding a right to share in the capital or profits.

What information must be provided?

Information must be provided in respect of the Overseas entity and its beneficial owners, for example;

  • Name
  • County of Incorporation
  • Registered or principal office
  • Service address
  • Contact details
  • 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.

What exemptions apply?

The Secretary of State may, by giving written notice, exempt the person if satisfied that to do so is necessary;

  • In the interests of national security
  • In the interests of the economic wellbeing of the United Kingdom
  • For the purposes of preventing or detecting serious crime

What will happen to Overseas Entities already holding Qualifying Estates?

  • Overseas entities which have been registered proprietors of Qualifying Estates pursuant to application after 1 January 1999 will be required to register with the new Register within 6 months of commencement of the Act.
  • Unless certain exceptions apply, Land Registry will place a restriction on the title of these Qualifying Estates

What are the consequences of failure to register?

  • Failure to register as an Overseas Entity will prevent registration of Qualifying Estates with the Land Registry. Preventing registration will mean that the Overseas Entity will only have an equitable interest in the land and the legal title will remain with the seller/landlord.
  • Similarly, an Overseas Entity which owns unregistered land will not be able to register it voluntarily or in response to a registration trigger.

What will happy when the Overseas Entity sells its Qualifying Estate or its lease expires?

  • When a registered Overseas Entity ceases to be registered at Land Registry as a proprietor of a Qualifying Estate, it will be able to apply to Companies House to be removed from the Register.

How will this impact commercial real estate?

Impacts on investors looking to acquire new assets

If an overseas entity acquire a new qualifying asset after the rules come into force it must obtain its overseas entity ID before it can become the registered proprietor of that asset at Land Registry. If the entity does not comply with these requirements the acquisition will not be registered so the entity will only get equitable title. The entity will also have committed a criminal offence and would be subject to penalties.

Penalties

Failure to comply with the new requirements will be a criminal offence punishable by a fine and for some breaches, imprisonment. The draft Bill state that unpaid sums under the Act may be secured by a charge against the property.

Implications for the commercial property market

There is now real potential for transactions to be delayed in order to allow for registration.

  • Lenders may want to take extra steps to ensure that overseas borrowers comply with the new rules for example, they may ask borrowers to produce overseas entity ID.
  • UK property companies looking to sell assets to an overseas entity will need to ensure the buyer has obtained its overseas entity ID otherwise the transfer will not be capable of registration.
  • Tenants/Occupiers that are serving notices should check office copies to ensure they are serving on the legal landlord where there is a possibility that the landlord is an Overseas Entity which did not comply with the rules so is not the one with legal title.

 

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If you would like to discuss any issue relating to this blog, please do not hesitate to contact a member of the Real Estate Dispute Resolution Team on 01895 201759 or contact us via the enquiry form at the top of our Property Disputes page.