Register of beneficial owners of overseas entities – update April 2018
The Government's plans to introduce a register of beneficial ownership for overseas entities which own UK property may have a greater impact than originally thought. The uncertainty surrounding the details of the proposal could unsettle some areas of the UK real estate market.
In April 2017 the Department for Business, Energy & Industrial Strategy (BEIS) published a call for evidence on its proposals to introduce a register showing who owns and controls overseas entities that own real property in the UK (or participate in UK government procurement). In March this year BEIS published its response to the call for evidence. The Government intends to produce a draft bill this summer and expects the register to be operational in 2021.
The regime will now apply to all registrable leases (i.e. those granted for a term longer than 7 years). Originally the Government intended the proposals only to apply to leases with terms over 21 years as it considered that these would be analogous to freehold (in that they would have capital value rather than being for a market rent).
The Government's revised proposals are a substantial departure making the regime more widely applicable than originally anticipated. More overseas entities will be affected, leading to a greater impact on the UK real estate market. Landlords will want to understand whether this creates new risks in granting leases to an overseas entity.For instance, if the tenant fails to meet its new obligations will that mean the tenant may not be able to surrender or assign its lease?
The majority of respondents to the call for evidence (including our own response) agreed that there would be some impact on the UK real estate market. Only time will tell how significant the impact will be. The situation should be clarified when the Government publishes its draft legislation but unwelcome uncertainty is likely to continue until the register is up and running in 2021.
Other updates from the Government's response
- The Government response confirms that the register will be enforced through restrictions to be registered against the property at the Land Registry. Non-compliance will be a criminal offence
- Overseas entities that already own UK property will have a grace period to provide information for the register. The Government response says that this will now be more than the one year originally proposed
- The information on the register will need to be periodically updated by the overseas entities. The original proposal was for this to be done at least every two years but the Government response says that this period is likely to be shorter (possibly as frequently as every six months).
- It is still not clear how the regime will affect UK companies or persons who co-own UK property with an overseas entity. We hope this will be clarified in the Government's proposed legislation
- During procurement processes that involve overseas entities, the Government will only require the preferred supplier to provide its beneficial ownership information as a condition to being awarded the contract. The Government will not require all overseas bidders to provide their information.