The Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA) was rushed through Parliament in response to the Ukraine war, in order to bring greater transparency to the UK property market.
ECTEA establishes a register of overseas entities (Register), which will be maintained by Companies House. All overseas entities (OEs) – meaning any company or other organisation that has legal personality and is governed by the law of a country or territory outside the UK – that own or deal with UK property are required to register on the Register. This process involves the OE providing details about its registrable beneficial owners and / or managing officers to Companies House. Most of the information given to Companies House will be publicly available on the Register.
ECTEA will have a significant impact on OEs. Since the Register opened on 1 August 2022, we have been in a transitional period but this draws to a close on 31 January 2023. Even though the deadline for registration on the register of overseas register is imminent, this does not mean that your requirements to register and report cease. It is essential, where you have an overseas entity in your group that owns UK property it has registered and continues to report on its holding of UK properties.
An OE that is an existing registered proprietor of a qualifying estate must apply to Companies House by 31 January 2023 to be registered on the Register. A qualifying estate is freehold land or leasehold land with a term of more than seven years. It is a criminal offence not to comply.
Some landowners are excluded because of longstanding ownership. The obligation does not apply where the OE applied to the Land Registry to become the registered proprietor at any time before 1 January 1999.
In order to apply to be registered, the OE must take steps to identify its beneficial owners. This process involves serving an information notice on any known or suspected registrable beneficial owners. Those who receive an information notice have a month to respond, confirming the position (although of course they may well respond sooner in practice).
The OE then needs to appoint an authorised UK agent, who will check and verify its identity and that of its registrable beneficial owners (or, in some cases, managing officers). The OE must submit information to Companies House about itself and its registrable beneficial owners (or, if applicable, its managing officers), together with declarations from both the OE and the verifying agent.
Given the deadline, if an OE has not already taken steps to prepare its application already, it should do so now. Any information notices which have not already been issued need to be served without delay.
The land registration elements of ECTEA came into force on 5 September 2022.
ECTEA introduced restrictions on property acquisitions – any OE that acquires property must be on the Register before it can apply to the Land Registry to be recognised as the proprietor of the property.
There are also new restrictions on property disposals that OEs must be aware of. From 31 January 2023, any OE will be prohibited from transferring, leasing (for a term of more than 7 years) or charging its qualifying estate, unless it is registered on the Register or one of certain narrow exemptions applies. This prohibition is protected by a restriction that the Land Registry has placed on OEs’ titles, which prevents the registration of the disposal at the Land Registry unless the OE has complied with these requirements.
For those OEs that acquired their property after ECTEA came into force, this prohibition is already in place.
It is a criminal offence not to comply with these disposal requirements.
An OE which disposed of any qualifying estate between 28 February 2022 and 31 January 2023 must submit details of the disposal and its beneficial ownership before the deadline to Companies House to record on the Register. Disposals which are relevant include any transfer, lease for a term of more than seven years or charge. The obligation applies even where the OE has disposed of all of its property by 31 January 2023 – and is designed to prevent OEs seeking to avoid ECTEA by making a quick sale before the deadline.
As above, longstanding owners are excluded from this obligation, and it is a criminal offence not to comply.
In summation, those OEs that have not already applied to be entered onto the Register must start the process now – or risk criminal liability for non-compliance and prejudicing forthcoming land transactions.
This article deals with the application of ECTEA in England and Wales only, and not with its application in Scotland and Northern Ireland.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
This article was first published by CoStar, see here.
© Farrer & Co LLP, January 2023