The register is coming for overseas entities

Posted: 05/09/2018

The draft Registration of Overseas Entities Bill has been published for consultation. It moves the UK one step closer to a ‘world-first’ public register of overseas entities owning UK property (the register). From 2021, overseas entities wishing to own UK property will need to identify and register their real owners. Entities failing to comply will be unable to sell, buy, lease or mortgage UK property – and could face criminal sanctions and fines.

Business minister Richard Harrington said the register “will expose the ultimate owners of overseas shell companies, giving authorities the information they need to come down on criminals who launder their dirty money through the UK’s property market”.

What is an overseas entity?

The definition of ‘overseas entity’ encompasses all non-UK entities with a legal personality (including companies, partnerships, corporations sole, governments and public authorities but not trusts). These entities will need to comply with the new regime unless the Government decides to exempt them.

Entities owning or intending to own UK property will need to take ‘reasonable steps’ to:

• identify their ‘registrable beneficial owners’; and
• register them at Companies House.

We await guidance on what amounts to ‘reasonable steps’. As a minimum, entities must send information notices to anyone they reasonably think:

• is a registrable beneficial owner; or
• might know a beneficial owner’s identity.

A person who fails to respond to a notice within one month, without reasonable excuse, could face up to two years in jail and an unlimited fine.

Entities unable to provide information on beneficial owners (for reasons specified in the bill) must instead provide Companies House with details of their managing officers (including their directors, managers or secretary).

Beneficial ownership information must accompany an entity’s Companies House application. After a successful application, Companies House will notify the entity of:

• its overseas entity ID (ID number); and
• the date of its registration.

The entity must then update its beneficial ownership information at least annually to ensure that its ID number remains valid.

The register will be viewable free by anyone on the Companies House website. Some information will not be public. Regulations will also set out an application process to suppress details where there is a ‘risk of harm’.

Enforcement

The bill contains serious sanctions to compel compliance:

• restrictions on an entity’s ability to deal with UK property; and
• criminal offences and fines.

Dispositions to overseas entities

The Land Registry will not register an entity as proprietor of a freehold interest or leasehold interest granted for more than seven years (qualifying estate) unless the entity has a valid ID number. Although the unregistered transaction will operate to pass the beneficial interest in the property, the entity will not obtain full legal title. If the entity successfully registers as proprietor, a restriction will still be placed on the title (see below).

Dispositions by overseas entities

The Land Registry must place a title restriction on any qualifying estate where an entity is the registered proprietor. Such restriction will prevent an entity:

• transferring a freehold;
• assigning a lease granted for more than seven years;
• granting a lease for more than seven years; or
• granting a legal charge (restricted dispositions).

However, the restriction will not prevent:

• dispositions by an exempt entity or one with a valid ID number;
• dispositions made pursuant to a statutory obligation/court order (such as a lease renewal pursuant to statute);
• dispositions made pursuant to a contract made before the restriction is entered on the title; or
• dispositions made in the exercise of a power of sale/leasing conferred on a registered mortgagor (or a receiver appointed by such mortgagor) – good news for lenders.

Dispositions by overseas entities entitled to be registered as proprietor

Because it is possible for an entity to dispose of property despite not being a registered proprietor, the Land Registry will not register restricted dispositions in these circumstances.

Obligations on overseas entities already registered at the Land Registry

These entities will have 18 months from the bill’s commencement date (a ‘transitional period’) to either:

• dispose of the property; or
• apply to the Land Registry to add their valid ID number to their title.

Penalties for non-compliance

There are various penalties for non-compliance, including:

• up to five years in jail and an unlimited fine for making a disposition of property that cannot be registered;
• up to two years in jail and an unlimited fine for failing to comply with the registration requirements within the transitional period;
• up to two years in jail and an unlimited fine for knowingly or recklessly making or delivering misleading, false or deceptive statements or documents to Companies House;
• an initial fine (and a daily default fine for continued contravention) for failing to comply with the updating requirements.

Actions overseas entities should take

Overseas entities should prepare now. It will take time to identify any/all registrable beneficial owners and comply with the registration requirements. Third parties contracting with overseas entities should:

• identify the contracting parties early in a transaction so that relevant checks can be made in good time;
• check that any overseas entity has a valid ID number;
• check that the annual validity period will not expire before exchange, completion or registration of the property; and
• consider contractual obligations (including termination rights) to ensure overseas entities comply with the new regime.

When acting for buyers, conveyancers should also consider raising enquiries of the seller to ensure that both legal and equitable title passed on previous disposals made by overseas entities. 

Timetable of overseas register

March 2016: Discussion paper published. The Government commits to introducing the register

April 2017: Call for evidence and response published

March 2018: Response to call for evidence published

July 2018: Draft Registration of Overseas Entities Bill published for consultation along with a research paper

September 2018: Consultation closes

Spring/summer 2019: Bill to be laid before Parliament

2021: Register will become operational after royal assent and the making of secondary legislation

Have your say

The Government seeks industry views on the bill, including on:

• whether some overseas entities (eg foreign governments and public authorities) should be exempt from the new regime;
• whether the information requirements should be modified for entities already disclosing beneficial ownership information to an ‘equivalent’ public register; and
• the power to disapply/modify the effect of Land Registry restrictions.

You can read the draft bill here – views must be submitted before 17 September 2018. 

This article was published in Estates Gazette in September 2018.

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