The Department of Business, Energy and Industrial Strategy (BEIS) has published the draft Registration of Overseas Entities Bill. The Bill will require overseas entities who wish to hold or deal with land or buildings in the UK to supply and update details of their beneficial ownership for a public register.
The story so far
Last year, as part of its ongoing anti-money laundering strategy, the government published a consultation on the principle of requiring overseas entities to supply details of their beneficial ownership as a condition of being able to hold, or dispose of, UK real estate.
In January 2018, the government announced its intention to publish a draft Bill by summer recess, which it has now done. It intends that the register will be operational in 2021. After that, no overseas entities will be able to register as owner of land in the UK or, where they already own land, dispose of that land without supplying and updating details of beneficial ownership for inclusion on a public register.
The draft Registration of Overseas Entities Bill
In its current form, the Bill will require any overseas entity that wishes to own land in the UK to take steps to identify their beneficial owner(s) and to register them with Companies House. The entity will then be referred to as a ‘registered overseas entity’ and will be required annually either to update this information or to confirm that their entry upon the overseas entities register is up-to-date. The overseas entity will have to have taken steps to identify registrable beneficial owners.
What happens if an overseas entity fails to comply?
It will be an offence to fail to update the information held on the register or to deliver misleading, false or deceptive information. This will be an additional burden on UK property owning overseas entities. An overseas entity will be in breach if it fails to remember to update the register or if it does not keep its administrative addresses at both Companies House and the Land Registry up to date in respect of reminders issued.
Failure to comply will mean the overseas entity cannot be registered as proprietor of land in the UK via the three Land Registries of England and Wales, Scotland, and Northern Ireland. Further, registration of any sale, registerable lease or mortgage of land already owned by the entity will be prevented by a restriction imposed by the relevant land registry.
What does this mean for buyers, tenants and lenders?
Anyone proposing to buy, charge or lease property to or from an overseas entity needs to be aware of these proposals and the risks to them of that transaction being void if the overseas company is not registered or if their registration is out of date at the date of completion and registration of the transaction. Consequently buyers, tenants and lenders will be reluctant to transact with any overseas entity other than a registered overseas entity and will require assurance and evidence that the updating duty has been fulfilled and will be fulfilled at the time of completion.
In some cases, contracts may have to be conditional upon compliance with the updating obligation if the completion date may fall after an update is due. Enhanced due diligence will be needed to avoid the serious consequences for the buyer, tenant or lender who is unable to register their transaction where an overseas party fails to supply or update the required information. This will add an additional layer of due diligence, complication and potential to delay in respect of property transactions involving an overseas entity.
What does this mean for overseas entities?
Other than in Northern Ireland, a transitional regime will apply to certain overseas entities that own qualifying land when the Bill comes into force. These entities will have 18 months from the commencement date either to provide beneficial ownership information to the Registrar or to dispose of the land if they do not wish to register. Prohibitions will be imposed on the registers of title to prevent registration of any sale, registrable lease or mortgage of land after 18 months from the Bill becoming law.
In Northern Ireland the requirements will only apply to new purchases by overseas entities on or after the commencement date as it is not possible for the Northern Ireland Land Registry to identify existing overseas entities that own land prior to commencement.
The draft Bill throws light on the government’s intentions as to how it intends to fulfil its policy objectives in connection with:
- establishing a register of beneficial ownership of overseas entities owning UK land
- delivering a streamlined policy, consistent across the UK and its land registries
- ensuring greater transparency around overseas entities that own or buy property in the UK or participate in UK government procurement.
Matters for consultation
Alongside the draft Bill is a consultation by BEIS on certain aspects such as overseas entities which may be incapable of compliance, the nature of the prohibition on dealings by overseas entities and possible exemptions. Responses must be made by 5pm on 17 September 2018.
For any queries on the proposed beneficial ownership register, please contact Richard Clark.