On 1 August 2022, much of Part 1 of the new Economic Crime (Transparency and Enforcement) Act 2022 (the Act) came into force and the Register of Overseas Entities went live. New land registration requirements in the Act will also soon come into force on 5 September 2022. The Act was introduced to address concerns regarding a lack of transparency around who ultimately owns land in the UK, and will have consequences for both existing owners of real estate in the UK and prospective buyers who are overseas entities.
Key dates to be aware of are as follows:
- 1 January 1999 – any overseas entity that applied to, and became, the registered proprietor of a qualifying estate in UK real property on or after this date will be captured by the provisions of the Act;
- 28 February 2022 – any overseas entity that has disposed of a qualifying estate in UK real property on or after this date, but prior to the expiry of the transitional period described below, will be required to disclose certain beneficial ownership information to the registrar;
- 1 August 2022 – a six-month transitional period began;
- 5 September 2022 – the land registration requirements in the Act will come into force;
- 31 January 2023 – the transitional period will end – any overseas entity still owning a qualifying estate in UK real property on this date must have applied to be registered on the Register of Overseas Entities.
In this briefing we summarise key aspects of the Economic Crime (Transparency and Enforcement) Act 2022 and the Register of Overseas Entities, which is now live. We focus on the position for real estate located in England and Wales but the Act is applicable to all qualifying estates in land across the UK.
The Register of Overseas Entities
There is now a Register of Overseas Entities (ROE), operated by Companies House, which is, for the most part, accessible to the public. Certain personal information (eg residential addresses) will not be publicly available. The ROE will contain details of the beneficial owners of overseas entities that own a “qualifying estate” in UK real estate. This means a freehold or a lease originally granted for a term of more than seven years.
Overseas entities are legal entities that are governed by the law of a country or territory outside of the United Kingdom. The ROE regime will cover all legal entities that can hold property, including body corporates, partnerships, foreign governments and public authorities.
In determining who is a beneficial owner, the Act is based closely on the People with Significant Control (PSC) regime for UK companies. The Act makes provision for there to be "exempt overseas entities" which are entities of such description as the Secretary of State may specify in regulations. No such regulations have yet been made.
The Act sets out the statements and information that need to be provided by an overseas entity for registration. On registration the registrar must allocate an overseas entity ID to the entity and record it in the ROE. A notice of registration must be served by the registrar on the overseas entity that has been registered.
Annually, the overseas entity will have to deliver updated information, or confirm that the information in relation to it on the ROE is up-to-date. Failure to comply will be a criminal offence committed by both the entity and every officer of the entity who is in default. The maximum sentence is an initial fine and a daily default fine of £2,500.
Key aspects of the Act for existing overseas owners of UK real property
Overseas entities that currently own a registered qualifying estate in UK real property must either have made an application for registration on the ROE declaring their beneficial owners (or their managing officers) or have disposed of such real estate before the end of a six-month transitional period from 1 August 2022.
Owners should be aware that from 5 September 2022 the Land Registry will start adding restrictions to all registered qualifying estates in England and Wales where the overseas entity became the registered proprietor pursuant to an application made on or after 1 January 1999. The practical effect of the restriction is that it will prohibit registration of dispositions of the relevant qualifying estate unless:
- the entity is a registered overseas entity, or exempt, at the time of the disposition; or
- the disposition is made in pursuance of a statutory obligation or court order, or occurs by operation of law; or
- the disposition is made in pursuance of a contract made before the restriction is entered in the register; or
- the disposition is made in exercise of a power of sale or leasing conferred on the proprietor of a registered charge or a receiver appointed by such a proprietor; or
- the Secretary of State gives consent to the registration of the disposition; or
- the disposition is made in very limited insolvency circumstances regulated by the Secretary of State.
Dispositions include transfers, the grant of many leases, the creation of easements and the grant of a legal charge.
Compliance with the restriction will be evidenced by providing a valid overseas entity ID number (as issued by Companies House) as part of the Land Registry application or a conveyancer’s certificate if one of the exceptions applies.
Any non-exempt overseas entity that will still hold a qualifying estate in UK real property once the transitional period has ended must therefore apply for registration on the ROE by 31 January 2023, unless it became the registered proprietor of that qualifying estate pursuant to an application made prior to 1 January 1999. Failure to do so will result in such entities no longer being able to deal freely with their properties. A failure to comply with the registration requirements in the Act is also a criminal offence committed by both the entity and every officer of the entity who is in default. The maximum sentence is a fine and/or imprisonment for up to two years.
It should be noted that the Act contains requirements in relation to identifying, and providing information to and about, registrable beneficial owners which must be complied with before an application for registration can be made. There are also detailed verification requirements in relation to information that is submitted to Companies House to register on the ROE. This should be factored into the timing of any application for registration on the ROE.
Key aspects of the Act for overseas entities who have disposed of UK land since 28 February 2022
Any overseas entity which disposes of all of its qualifying property prior to the end of the transitional period does not need to apply for registration but will still be required to disclose beneficial ownership information to the registrar before the end of the transitional period. This information requirement applies retroactively to all dispositions of qualifying estates in UK real property by overseas entities that took place on or after 28 February 2022 but before the end of the transitional period. This is the case even if the overseas entity no longer owns any qualifying estate in UK real property at the end of the transitional period. Failure to comply will be a criminal offence committed by both the entity and every officer of the entity who is in default. The maximum sentence is an initial fine and a daily default fine of £2,500.
Key aspects of the Act for potential acquirers of UK land who are overseas entities
An overseas entity that is a buyer of a qualifying estate in UK real property must also be wary. In addition to the restrictions on overseas entities disposing of their qualifying estates after the end of the transitional period, the legislation also prevents any application from being made to register an overseas entity as the new proprietor of a qualifying estate in England and Wales, unless the entity is a registered overseas entity or exempt. For the registration of an overseas entity as the new owner of a relevant property, there is no transitional period. As a result, any non-exempt overseas entity that acquires a qualifying estate in England and Wales from 5 September 2022 must be registered on the ROE in order to be registered as the legal owner of the qualifying estate.
Immediate action points
- Review real estate portfolios – Any overseas entity which currently owns or leases real estate in the UK should determine whether any of its interests are qualifying estates.
- Review recent real estate transactions – Any overseas entity that has disposed of a qualifying estate since 28 February 2022 must disclose beneficial ownership information to the registrar, even if they no longer own any relevant interest in UK land at the end of the transitional period.
- Begin identifying beneficial owners – Before making an application for registration on the ROE, an overseas entity must take reasonable steps to identify its beneficial owners and to obtain the required information about such owners. Such reasonable steps include giving an information notice to any person that it knows, or has reasonable cause to believe, is a registrable beneficial owner in relation to the entity, requiring them to provide certain information. A person to whom an information notice is given has a month to respond, so this timing should be factored in when considering the timeline for making an application.
- Consider who will verify beneficial owners – Before making an application for registration on the ROE, an overseas entity must have its beneficial ownership information verified. Only a limited number of professionals are able to carry out such verification and the process may be time-consuming. As with identifying beneficial owners, this should be factored into any application timeline.