Registration of Overseas Entities on the UK Register of Overseas Entities – Are You and the Other Party to Your Transaction Compliant?
The Economic Crime (Transparency and Enforcement) Act 2022 is the latest in a line of anti money laundering legislation, this one designed to stem the flow of dirty money into the UK property market, where the true ownership and source of funds is hidden by the use of overseas companies including those offshore. Even though the legislation is aimed at entities involved in crime, the new regime will catch all overseas entities that own or acquire UK property and covers the Channel Islands and Isle of Man.
Companies House Register of Overseas Entities
Every overseas entity that is already the registered proprietor of a freehold or leasehold title (and became registered proprietor since 1 January 1999) will have until 31 January 2023, the end of the transitional period, to register their beneficial ownership on the new register of overseas entities. A UK regulated agent will be required to verify the beneficial ownership information provided by the overseas entity and in turn the UK regulated agent must register at Companies House with an agent assurance code. https://www.gov.uk/guidance/register-an-overseas-entity#what-is-needed-for-verification-checks The beneficial ownership information will also need to be updated annually.
It is a criminal offence to fail to register or to submit an annual update.
The register will be maintained by Companies House. The concept of ‘beneficial ownership’ is closely based on the existing register of ‘persons with significant control’ that Companies House currently operates for UK companies. A beneficial owner is someone who (directly or indirectly) holds more than 25% of the shares and/or voting rights in the entity, or the right to appoint or remove a majority of the board of directors, or who exercises significant influence or control over the entity. Some entities are exempt from registration, but generally only where this is required in the interests of national security or for the purpose of preventing or detecting serious crime.
Land Registry Restrictions
The Land Registry must identify every freehold and leasehold title where the registered proprietor is an overseas entity (and became registered proprietor since 1 January 1999) and register a restriction on each title. Practice guide 78: overseas entities – GOV.UK (www.gov.uk)
The restriction will prevent the registration of certain dispositions by the registered proprietor including in particular a transfer, the grant of a lease exceeding seven years or a legal charge unless the registered proprietor is a registered overseas entity (or exempt). Note that the registered proprietor must be a registered overseas entity (or exempt) at the time of the disposition. A party will find themselves unable to register their transfer, lease or legal charge unless the overseas entity is fully compliant (including the annual updating).
Some dispositions are excluded under Schedule 4A of the Act. The restriction will not affect a disposition:-
- pursuant to a court order
- made pursuant to statutory obligations
- made pursuant to a contract made before the restriction was registered;
- made in exercise of a power of sale conferred on a mortgagee or a receiver appointed by a mortgagee;
- made by a specified insolvency practitioner in certain circumstances.
It is a criminal offence to make a disposition that is prohibited by the restriction.
An overseas entity is not be able to register a transfer (or a new lease exceeding seven years) at the Land Registry unless it is a registered overseas entity (or exempt).
When the Land Registry registers the overseas entity as proprietor, it will add a restriction to the title in the terms discussed above. This is to ensure that the entity remains a registered overseas entity at the time of any future disposition.
Practical Things to Consider
Affected overseas entities should prepare their registration applications now.
We will start to see restrictions appearing on registered titles held by overseas entities so anyone who deals with an overseas entity, particularly one that is making a disposition, will need to ensure that the overseas entity is a registered overseas entity at the relevant time so that you don’t get stuck with Land Registry requisitions that can’t be complied with!
James Chisholm is a Partner and Head of Real Estate at Lichfield based law firm, Keelys LLP.