Out-Law Guide | 20 Oct 2022 | 3:39 pm | 5 min. read
The new register of overseas entities (ROE) at Companies House was created on 1 August 2022. It is relevant to IPs and receivers selling UK property to overseas entities and also to IPs appointed over overseas entities and to receivers appointed over property owned by overseas entities.
The ROE was created following the entry into force of the 2022 Economic Crime (Transparency and Enforcement) Act (‘the Act’) which was fast-tracked through parliament earlier this year following Russia’s invasion of Ukraine. The Act aims to tackle concerns around “dirty money” being used to purchase UK property and improve transparency on ownership, which could previously be shrouded in layers of secrecy.
Overseas entities with a “relevant interest” in UK land must register the identity of their beneficial owners on the ROE before 1 February 2023 and keep the register up to date. Failure to do so is a criminal offence. The Act applies to all non-UK incorporated companies, LLPs, partnerships and other entities that are governed by the law of a country outside the UK. These entities will be unable to acquire, charge or dispose of UK property without having first registered on the ROE.
For more on the ROE and the legal requirements, see our Out-Law guide to the UK's register of overseas entities.
Since 5 September 2022, an overseas entity purchasing or taking a lease of property in the UK will not be able to register its ownership or tenancy of that property at the Land Registry or the Land Register of Scotland without first registering on the ROE. Failure to do so is a criminal offence. Any lender providing acquisition finance to an overseas entity is extremely likely to insist that the overseas entity registers on the ROE as a condition of the lending to enable the lender to register its charge or standard security at the Land Registry or Land Register.
Registration on the ROE will have timing implications as an overseas entity needs to give one month’s notice to its beneficial owners before registering on the ROE, although this period can be shorter if the beneficial owners agree. Additionally, the information submitted to Companies House must be independently verified, which appears unlikely to be a straight-forward process and only a limited number of providers are offering this verification service. This delay needs to be factored into any sales process where a potential buyer is an overseas entity which is not yet registered on the ROE.
Overseas entities acquiring property or the tenancy in a long lease in Scotland may also need to comply with the separate registration regime which requires those who have significant influence or control over owners or tenants or land in Scotland to be registered with the Registers of Scotland.
From 1 February 2023, it will be a criminal offence for an overseas entity to dispose of property without having been registered on the ROE unless the overseas entity is exempt.
Although these restrictions do not apply until February 2023, it is likely that a purchaser buying, leasing or taking a charge over a property from an overseas entity now will require that the overseas entity is registered on the ROE prior to the transaction completing. This is due to concerns over potential delays at the Land Registry and Land Register and the possibility of applications being rejected which will take the registration process beyond February 2023.
Where an overseas entity has registered on the ROE but has failed to keep the ROE up to date (this has to be done every 12 months subject to a 14-day grace period, although the entity can elect to shorten this period), it will be treated as though it is not registered on the ROE until the breach is remedied. It is also a criminal offence to fail to maintain the register.
The Act allows regulations to be published to exempt certain types of overseas entities, although no regulations have yet been published and it seems unlikely that they will.
In England and Wales, the Act allows dispositions by a mortgagee or receiver exercising their power of sale or lease. The exemption focuses on disposals. It may not cover other scenarios, for example a lease renewal where a new title is created, and the overseas entity cannot be registered as the proprietor of the new title if it is not also registered on the ROE.
In Scotland, the Act allows lenders to exercise their power of sale or lease in a standard security that was registered on or after 8 December 2014.
Across the UK, there is also an exemption to allow dispositions “made by a specified insolvency practitioner in specified circumstances”. The types of insolvency practitioners and the circumstances referred to have not yet been specified, so the exemption currently has no effect. Presumably the exemption will include both overseas IPs and also UK based administrators and liquidators appointed over overseas entities with their COMI [centre of main interest] in the UK. Although the restrictions on disposals do not apply until 1 February 2023 and we anticipate that regulations defining the “IP exemption” will be published before that date, the position remains uncertain for purchasers buying property from IPs now and there will be concerns from buyers that the process of registration at the Land Registry or Land Register may go beyond February 2023. IPs should therefore consider working with officers of the overseas entities; using their powers to obtain the relevant information to register the overseas entity on the ROE; and/or explore the possibility of the lender, as mortgagee, transferring the property to the buyer.
The obligation to register on and keep the ROE up to date lies with the overseas entity. The overseas entity and “any officer” who is in default commits a criminal offence.
It is difficult to see how this could extend to IPs or receivers. However, there is currently no exemption for overseas entities subject to insolvency proceedings, no guidance has been issued and we await further regulations relating to IPs.
From a practical perspective, an IP may not have the relevant information to effect registration on or update the ROE.
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