232: Register of Overseas Entities owning UK property
Retrospective and future registration for overseas entities owning UK land
Any legal entity which is governed by the law of a country or territory outside England and Wales and intends to purchase or already owns a freehold title or leasehold title of longer than 7 years (qualifying estate) will need to enter onto the ROE.
The ROE will have retrospective effect. It applies to any overseas entity which has already purchased a qualifying estate in England and Wales since 1 January 1999.
The ROE came into force on 1 August 2022 under the Economic Crime (Transparency and Enforcement) Act 202 (ECTEA).
The land registration provisions (Schedule 3 ECTEA) will come into force on 5 September 2022.
What does this mean?
An overseas entity which has owned UK real estate since 1 January 1999 must apply for registration of their beneficial ownership at CH within 6 months of 1 August 2022 (ie before 1 February 2023).
Overseas entities are also required to provide information in relation to dispositions of land (ie sales, purchases, lease and charges) made between 28 February 2022 and 1 February 2023 (the ‘Transitional Period’).
Overseas entities required to register must update their entries at CH annually.
Failure to register and update entries annually at CH is a criminal offence. Directors could face fines and up to 5 years in prison.
The requirements do not affect overseas individuals owning UK property through a UK entity (directly or indirectly).
Non-UK trusts do not fall within definition of an overseas entity as they do not have legal personality.
Future acquisitions and disposals
HMLR will not be able to register an overseas entity as the registered owner of a ‘qualifying estate’, unless the entity has registered the beneficial ownership at CH with an ID number (or has been designated exempt by the Secretary of State).
Failure to comply with registration on the ROE will prevent an overseas entity from making registrable dispositions eg transfer of freehold, transfer of registered leasehold, grant of legal charge or grant of lease over 7 years
The disposition itself will be valid, but cannot be registered at HMLR unless at the time of disposition the overseas entity is registered ie no power to further dispose of the estate.
HMLR must enter a restriction on the title for every existing qualifying estate held by an overseas entity within the Transitional Period.
For overseas entities that became a registered proprietor of a qualifying estate on or after 1 January 1999 but before 1 August 2022, the restriction on title does not come into effect until after the end of the Transitional Period.
Such overseas entities are under a duty to register in the ROE within the Transitional Period. Simply doing nothing could result in criminal liability when the Transitional Period has ended.
Future acquisitions – dispositions by an overseas entity which is entitled to be registered but not yet registered as proprietor of qualifying estate will be prevented from being registered at HMLR unless the overseas entity is registered on the ROE.
Charges over property
Existing lenders are protected and failure to comply with CH requirements will not prevent enforcement of existing charges.
Lenders will want to take additional steps to make sure borrowers comply with the registration requirements in order to get new charges registered at Companies House.
Undertakings and representations in property finance loan agreements may be extended to accurate up-to-date filings and compliance with ongoing registration requirements.
Identification of beneficial owners
The register will require details of individual beneficial owners, or managing officers who have significant influence or control over the overseas entity.
This includes a person who holds, directly or indirectly:
- more than 25% of the shares in the overseas entity;
- more than 25% of the voting rights in the overseas entity;
- the right to appoint or remove a majority of the board of directors in the overseas entity; and
- the right to exercise or actually exercise significant influence or control over the overseas entity.
The right to exercise or actually exercises control over a trust, partnership, unincorporated association or entity where the trustees of that trust, or members of a partnership, unincorporated association or other entity (which may not be a legal person under the law by which it is governed), in turn meet any of the conditions above in relation to the overseas entity.
Non-UK trusts are in principle not caught by the Act.
However, an underlying beneficial owner who has the right or exercises significant control over a trust which in turn owns UK property will be within the scope of the register.
What information will need to be provided for the verification process?
The overseas entity will need to provide its:
- country incorporated;
- registered office and correspondence address, including email address;
- legal form and governing law;
- public register it appears on and registered number;
- title numbers of UK properties owned or disposed of since 28 February 2022;
- date UK property disposed of since 28 February 2022; and
- details of additional beneficial owners at the time property was disposed of.
The beneficial owner of an overseas entity can be an individual person, another legal entity, government or public authority. If there are no beneficial owners or you have not identified all your beneficial owners, information about the managing officers of the overseas entity will need to be given.
The beneficial owners or managing officers will need to provide:
- name, date of birth, nationality and address; or
- entity name, registered office address, correspondence address, legal form and governing law (whichever is applicable);
- date they became a beneficial owner of the overseas entity;
- nature of control; and
- details if they’re registered on the UK Sanctions List.
Verification at Companies House
Companies House opened the new ROE register at the start of August 2022.
The beneficial ownership of an overseas entity must be verified by a UK agent who has been approved by Companies House and subject to UK anti-money laundering regulations.
Once registered the overseas entity will be issued with an ID number and must update registration annually
It is not clear who will act as agent to carry out the registration or how this will work.
The Law Society has issued guidance suggesting that UK property lawyers will not be able to act as agents and that overseas agents must be involved in the due diligence process.
Due diligence and checks on the register must be made at an early stage, including:
- checking the overseas entity ID number will not expire before exchange, completion or registration;
- adding contractual obligations and warranties where the seller and / or buyer is an overseas entity requiring it to have and maintain a valid ID number; and
- considering other contractual obligations such a termination for breach of warranty.
Please reach out to our real estate team for any enquiries.