This article was originally published in Estates Gazette on 30 August 2022.
The progress of the Economic Crime (Transparency and Enforcement) Act 2022 has continued apace since it was passed in March 2022, with the new publicly accessible register detailing the beneficial ownership of overseas entities holding certain interests in UK property (ROE) having launched on 1 August 2022, and the new land registration requirements coming into force on 5 September 2022.
For those unfamiliar with it, the act is intended to bring transparency to the ownership of UK property held by OEs and will apply to OEs that:
While the act applies to UK property more broadly, this article is focused on property in England and Wales, since slightly different rules apply to property in Scotland and Northern Ireland, which are beyond the scope of this article. For more detail on the background of the act and who is caught, and for more information on the identification of beneficial owners, see What the Economic Crime Act means for ownership (EG 22 March 2022).
OEs and their advisers will need to consider their individual circumstances on a factual basis, given the complex nature and date-driven requirements of the act. Some of the possible scenarios in which the act may apply are as follows:
Overseas entities which acquired UK property on or after 1 January 1999.
OEs which acquired UK property on or after 1 January 1999 have until 31 January 2023 to register their beneficial owners (or managing officers) at Companies House. They will be unable to freely deal with their UK property on or after 1 February 2023 unless, in broad terms, they are registered on the ROE with a valid ROE ID number or are designated under regulations as being exempt.
Those OEs and their beneficial owners (and/or managing officers) will also face serious criminal liabilities and financial penalties if, on 1 February 2023, they remain registered as the proprietor of any UK property at the Land Registry but are not registered (nor have a pending application for registration) on the ROE and are not otherwise exempt.
Overseas entities registering ownership of UK property on or after 1 August 2022.
From 5 September 2022 the Land Registry will not accept applications to register UK property made by OEs unless they have registered on the ROE and have a valid ID number.
However, there is uncertainty in the act as to what happens where OEs acquire UK property on or after 1 August 2022 when the ROE is live, but before 5 September 2022 when the land registration requirements commence. The Land Registry has recognised this gap in its practice guidance (Practice Guide 78) and confirmed that an ROE ID number will not be required for applications submitted during this short period.
OEs with transactions due to complete on or after 5 September 2022, or in the weeks preceding that date, should start the registration process immediately given the expected delays at Companies House and the onerous verification requirements discussed below.
Overseas entities disposing of UK property between 28 February 2022 and 31 January 2023.
OEs disposing of their UK property between 28 February 2022 and 31 January 2023 will be caught by the transitional provisions of the act, such that they will still need to register details of their beneficial owners (or managing officers) and the disposition at Companies House before 1 February 2023. This will be the case even if, as a result of such disposal, they no longer own any UK property.
While it is not yet clear if OEs will appear on the ROE where they no longer hold an interest in UK property on 1 February 2023, Companies House will nevertheless record the information and it will be publicly available for two years.
Overseas entities disposing of UK property on or after 5 September 2022.
From this date the Land Registry will begin to place restrictions on the titles to UK property acquired by OEs on or after 1 January 1999, albeit the restrictions will not come into effect until 1 February 2023 for titles that were registered, or for which applications for registration had been made, prior to 1 August 2022. The restrictions will prevent the registration of any transfers, leases for terms of more than seven years or charges except where the OE is registered on the ROE at the time of the disposal or in limited other circumstances (such as where the disposal is contracted for before the restriction is lodged).
OEs (and any defaulting officers of OEs) will face criminal penalties if they purport to transfer, let or charge any of their UK property in breach of the restrictions. The same penalties will apply where OEs purport to make disposals of UK property pending its registration at the Land Registry and the disposal would, in essence, be prohibited by a restriction were it registered. They should therefore ensure they are registered on the ROE when making any disposals, and that any contracts for disposals contain suitable wording to deal with any failure to register (or re-register) on the ROE pending completion.
As can be seen, registration will now be crucial for many OEs given the deadlines imposed by the act. Unfortunately, the new Register of Overseas Entities (Verification and Provision of Information) Regulations 2022 present a further hurdle in terms of how information must be verified before it is submitted to Companies House, which may create yet more delays and costs.
This is because any information supplied to Companies House must first have been independently verified by a UK-based 'relevant person' who is supervised under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. Those include credit institutions, financial institutions, auditors, insolvency practitioners, external accountants and tax advisers, independent legal professionals, trust or company service providers and estate agents.
The government has confirmed that it will be easier for OEs to be registered at Companies House by the relevant person who carries out its verification checks, which OEs may wish to consider when selecting one.
The verification obligations also present a significant concern for legal professionals, especially given the associated criminal liabilities.
In its guidance for solicitors, the Law Society has urged solicitors to exercise 'extreme caution' in relation to the verification requirements as they do not allow for a reasonable and risk-based approach and are therefore fundamentally different to the anti-money laundering processes that solicitors will be familiar with. It is accordingly unlikely that solicitors will take on this obligation and will instead direct clients to other third-party providers.
While it will be for each OE and its advisers to decide on the best course of action, potential next steps might include:
Those transacting with OEs, and their advisers, will need to remain vigilant and consider the implications of the act in the context of their own individual circumstances. Two likely situations are as follows:
Acquiring UK property from an overseas entity.
Parties acquiring from OEs are likely to push for their registration on the ROE and insist on contractual safeguards as they could be affected where completion is scheduled for after 31 January 2023 (or earlier where the disposing OE has applied for registration of the relevant UK property on or after 1 August 2022), or in the weeks preceding that date, or if their application to the Land Registry is cancelled and resubmitted after that date. The contracting party would then be unable, in the ordinary course of events, to register its interest at the Land Registry until the OE’s ROE ID number is supplied.
It may be possible for a contracting party to register where it enters into a contract with an OE before a restriction is lodged against the title, as mentioned above, but care must be taken in cases of conditional contracts.
Disposing of UK property to an overseas entity.
Parties disposing to OEs will also have concerns, including the delay or failure of the OE to register on the ROE. This would result in the rejection of its application at the Land Registry and the disposing party remaining the legal owner of the property.
If an OE is not properly registered on the ROE at Companies House then this could also give rise to proceeds of crime issues.