In recent years, Parliament has taken a series of steps to create more transparency around the beneficial ownership of UK property. The most recent development is the introduction of the Economic Crime (Transparency and Enforcement) Act 2022 (ECTE Act), which received Royal Assent on 15 March 2022. We explained how the ECTE Act would affect overseas entities owning UK property in a previous article (here).
The new register of overseas entities (the ROE) maintained by Companies House is set to go live on 1 August 2022. The land registration elements of the ECTE Act are expected to come into force on 5 September 2022.
Formal confirmation of the launch dates (in the form of a commencement order) has not yet been published, but it seems likely the transitional time period in the ECTE Act will be deemed to start on 1 August 2022 and expire on 31 January 2023. This interval provides any overseas entities intending to acquire UK property on or after 5 September 2022 with the time to register at Companies House so that they can make their application to the Land Registry to register as the registered proprietor of the property promptly following the acquisition. Further guidance from both Companies House and the Land Registry is expected to follow in the Autumn.
To recap, under the rules set out in the ECTE Act, an overseas entity which acquires UK property will need to register in advance at Companies House (and this includes the requirement to file beneficial ownership information, which will be publicly available) before applying to register its land acquisition with the Land Registry.
The requirement to register at Companies House will also apply to overseas entities which currently hold land in England or Wales which was purchased on or after 1 January 1999 (or land in Scotland purchased on or after 8 December 2014). These entities will have until 31 January 2023 to register.
It will not generally be possible for a third party to register as the legal proprietor of UK land transferred to them by an overseas entity unless that overseas entity (subject to the six month transition period, where applicable) is registered at Companies House and ensured it has complied with its ongoing filing obligations.
The new regime will also affect overseas entities that have disposed of UK property between (and including) 28 February 2022 and 31 January 2023. These overseas entities must also apply to register details about the dispositions and the registrable beneficial owners immediately prior to the disposition with Companies House by 31 January 2023. This information will be publicly available for at least two years.
Companies House registration
The application to the ROE must include certain prescribed information about the registrable beneficial owners and managing officers of the overseas entity. This information needs to be updated annually. On 25 July 2022, Companies House published a guidance note (see here) explaining the ROE and what constitutes an overseas entity and a beneficial owner. It also provides guidance on the information which needs to be submitted to Companies House about: (i) the overseas entity; (ii) any registrable beneficial owners; (iii) managing officers; and (iv) the UK regulated agent that carries out the verification checks.
Once an entity has been successfully added to the ROE, Companies House will issue an overseas entity identification registration number (OEID) which will then be used for Land Registry applications. The OEID will be added to the proprietorship register on the official copies of the property held by the Land Registry. The OEID will also need to be added to certain prescribed form documents (eg transfers and leases).
Penalties for not complying with the ROE filing obligations include fines of up to £2,500 per day or a prison sentence of up to five years, along with restrictions when buying, selling, transferring, leasing or charging property in the UK.
Before an overseas entity registers its beneficial owners or managing officers on the ROE, a UK-supervised “relevant person” will need to verify the required information about them as set out in the ECTE Act. These verification checks must be carried out by a UK-based agent supervised under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017. Supervised agents will need to provide an agent assurance code (the equivalent of a signature) and an overseas entity verification checks statement to Companies House to confirm that the appropriate procedure is followed.
Land Registry updates
Amendments are being made to the Land Registration Rules 2003 which include the amendment of some of the Land Registry’s prescribed forms (for applications and dispositions) as well as to the prescribed clauses which are included at the front of a registerable lease so the OEID can be inserted where required. It will be possible to use the existing Land Registry forms for 15 months from the date the ROE goes live, provided the OEID (or confirmation none is required) is included with the Land Registry application.
The Land Registry will be issuing further guidance on the land registration requirements for applications involving properties where an overseas entity is or will be the registered proprietor.
There is some uncertainty about the position held by an overseas entity which is set to acquire UK property between 1 August 2022 and 5 September 2022 and the deadline which will apply for registering on the ROE. There is no requirement for such an entity to have an OEID for registration at the Land Registry prior to 5 September 2022 but it is not clear that these entities will benefit from the transitional period for ROE registration. The prudent approach would be to ensure the overseas entity registers on the ROE as soon as possible after it opens.
For those dealing with overseas entities during the transitional period up to 31 January 2023, there will be additional concerns. It is anticipated that most of those transacting with unregistered overseas entities will ask that the contract includes obligations requiring the ROE registration requirements are met.
Those with a current or imminent UK property transaction involving an overseas entity will need to take more immediate action and consider their position once the ROE opens on 1 August.
Those who already hold UK property within overseas entities or have disposed of it since 28 February 2022 do not need to take urgent action and may wish to wait until more guidance and information become available over the next few weeks. However, they should seek advice on their position and prepare for registration ahead of the anticipated deadline of 31 January 2023.
If you require further information about anything covered in this blog, please contact Annabel Dean, Christina Tennant, Suzanne Conticelli, Sophie Giblin or your usual contact at the firm on +44 (0)20 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, July 2022