The Economic Crime (Transparency and Enforcement) Act 2022 (the “Act”) was introduced in response to the situation in Ukraine. It sets up a register of overseas entities who own land in the UK and requires them to disclose their beneficial owners. Failure to register is a criminal offence.
This article considers the application of the Act in England and Wales. There are equivalent provisions for Scotland and Northern Ireland.
The register of overseas entities (ROE), which is maintained by Companies House, went live on 1st August 2022.
- Who is affected?
Any overseas entity (as opposed to an individual or a UK entity) who owns a qualifying estate in land in the UK.
An overseas entity (OE) is a body corporate, partnership or other entity which is not governed by the law of the UK and is a legal person under the law by which it is governed.
The register will apply to OEs who hold qualifying estates in land. These are freehold estates or leaseholds in excess of seven years.
UK entities who buy, sell, lease or lend to overseas entities also need to be aware of the new requirements.
- How do overseas entities get registered?
OEs will need to register at Companies House and will be allocated an OE ID. The OE ID will be required by the Land Registry before it registers any dealings with land.
The ROE is a digital service and OEs and their agents will be required to register online. The registration fee will be £100.
As part of the registration, OEs will need to provide information about their beneficial owners or managing officers and are required to update this information annually. There is a requirement for the OE to serve notice on any person it knows (or has reasonable cause to believe) is a registrable beneficial owner requiring them to confirm the position. Recipients of information notices have a period of one month to comply with the notice.
Information provided by OEs about their beneficial owners and managing officers must be verified. Verification must be carried out before making an application for registration on the ROE, providing an annual update to Companies House, or applying for removal from the ROE.
These verification checks must be carried out by a UK-supervised agent that’s supervised under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017.
- Who are beneficial owners?
A registrable beneficial owner may be an individual, a legal entity or a government or public authority. Broadly, a beneficial owner either:
- holds, directly or indirectly, more than 25% of the shares in the OE;
- holds, directly or indirectly, more than 25% of the voting rights in the OE;
- holds the right, directly or indirectly to appoint or remove a majority of the board of directors of the OE; or
- has the right to exercise, or actually exercises, significant influence or control over the OE.
- What changes are happening at the Land Registry?
The Land Registration elements of the Act will come into force on 5 September 2022.
From 5 September, an OE who purchases a qualifying estate in UK land will not be able to apply to become the legal owner of the property at the Land Registry without an OE ID. Immediately following a successful registration at the Land Registry, such purchasers will have a restriction placed on their title which (subject to some exceptions – see below) prevents further dispositions (sales, leases, charges) without an up-to-date OE ID number.
OEs who currently own UK land (since 1 January 1999) will have a restriction placed on their existing title, which will take effect at the end of a sixth month transitional period (31 January 2023). After that date (subject to some exceptions – see below), the OE will not be able to sell, lease or charge the land without an OE ID number.
The exceptions to the prohibition on dispositions where there is a restriction include where the disposition:
- is pursuant to a statutory obligation or court order;
- is pursuant to a contract made before the restriction was entered in the register;
- occurs in the exercise of a power of sale by a registered chargee or a receiver appointed by the chargee; or
- is made by a specified insolvency practitioner in specified circumstances;
There is also an exception where the Secretary of State consents to registration.
- What about historic transactions?
The Act contains provisions designed to prevent a rush to dispose of assets by those who do not wish to disclose details of their beneficial ownership during the period between the announcement of the legislation and the end of the transitional period. Therefore, OEs must disclose to Companies House details of any dispositions which took place from 28 February 2022 to 31 January 2023. It is an offence if this disclosure does not take place by 31 January 2023.
- I am a UK entity/individual who is buying, selling, leasing or taking a charge over property where the other party is an OE. How does the Act affect me?
You will need to check that the OE counterparty has complied with its registration obligations.
Some of the possible outcomes include:
- An OE who buys from you not being able to obtain the OE ID from Companies House. They will not be able to register their interest at the Land Registry so you, the seller, will remain the legal owner.
- When taking a transfer, lease or charge from an OE, a restriction may appear on the title register after exchange. If the completion date falls after the transitional period ends in January 2023, registration of the transaction will not be possible without compliance with the restriction.
- If an OE seller transfers the property to you, the buyer, in breach of the Act (where the seller is an OE and not registered in the ROE at Companies House), then this is a criminal offence by the seller and the completion money may be the proceeds of crime. You may also not be able to comply with any relevant restriction on the Land Registry title and may not be able to become the legal owner of the property.
See also our earlier articles: Register of Overseas Entities That Own UK Property – An Update and What does the Economic Crime Act mean for lenders?