As expected, and just in time for the summer recess, the Government has released the first Draft Registration of Overseas Entities Bill. This is the proposed legislation which enacts the Government's promise to require overseas entities owning UK property to register at Companies House.
The Government has consulted on the content of the legislation and the provisions of the Bill are much as anticipated. Overseas entities which own UK property - which for this purpose includes freehold land and leasehold interests originally granted for seven years or longer - must register details of both the overseas entity and its beneficial owner at Companies House. Overseas entities will therefore need to take steps to identify their beneficial owners in order to comply with these rules. Where there is no beneficial owner, they will need to include details of each managing officer on the entity. Once this has been done, an ID number will be issued by Companies House which will be used by the overseas entity and the Land Registry to allow property transactions to proceed.
An overseas entity is broadly defined as any entity which is treated under its domestic law as having separate legal personality; this will therefore include a wide range of corporate vehicles and partnerships.
The beneficial owner test is closely modelled on the existing definition of a person with significant control (PSC). As such the various tests as to who is a beneficial owner will be familiar: in broad terms, ownership of 25% or more of the shares, the ability to control 25% or more of the votes, the right to remove the majority of the board of directors or otherwise to exercise significant influence or control over the entity will satisfy the tests for beneficial ownership.
One of the more controversial aspects of the Bill is that if overseas entities have not complied with the registration requirements when they should have done, this will restrict their ability to deal with their property.
The Land Registry will enter a restriction on the property register where an overseas entity is registered as the proprietor. The restriction will prohibit the registration of a disposition of the property unless the overseas entity is registered with Companies House and they have complied with the updated requirements. A disposition covers a transfer of the land, the grant of a lease of seven years or more and the grant of a legal charge.
Accordingly, a buyer of property cannot be registered as the legal owner until the rules have been complied with by any overseas entity involved in the transaction. A lender will be in the same position, and they will not be able to register their security at the Land Registry in this circumstance. It will therefore be an important condition precedent for lenders to ensure that any overseas entity involved in a property transaction has properly registered at Companies House.
Helpfully for lenders, once a charge has been registered, the restriction against the title will not prevent the sale of the property in the exercise of a power of sale by the holder of a registered charge
The Bill imposes criminal sanctions for non-compliance on the officers of the relevant overseas entity and beneficial owners.
As with the PSC register, the information on Companies House will be publicly accessible with, we expect, very limited restrictions.
Overseas entities will be required to register at Companies House within 18 months of the commencement date of the Act. It is also possible that they will be given earlier notice to register and, if so, they must do so within six months of that notice.
The legislation includes the concept of an “exempt overseas entity” which is not subject to these rules. However, at this stage, no indication is given as to what entities will be exempt, other than, perhaps government entities that would otherwise be caught by the rules. It is expected that this category will in fact be limited.
The obligation for overseas entities on the register is to update information every 12 months, which compares to a 14-day period after any change for the PSC regime. An overseas entity can apply to be removed from the live register when it no longer holds a UK property.
The Government has invited comments on the Bill by 17 September 2018 and, following that, the process to put legislation before parliament will commence. It is anticipated that the Register will be operational in 2021.
If you require further information on anything covered in this briefing please contact Anthony Turner, or your usual contact at the firm on
020 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 2018