Overview
Over a year has now passed since the implementation of the Economic Crime (Transparency and Enforcement) Act 2022 (the 'Act’) which established the Register of Overseas Entities (the “Register”).
The Act was introduced with the aim of tackling economic crime. In particular, the Register provides greater transparency surrounding the ownership of UK property by overseas entities. Should an overseas entity (“OE”) fail to become duly registered, the OE will be unable to do certain things in relation to the land they own (i.e. transfer title, grant leases (of over 7 years in England & Wales (or over 20 years in Scotland) or grant mortgages/security over the land). As such, compliance with the Act is key with regards to property finance transactions.
With many organisations coming to terms with the new requirements, it is important to highlight that there are ongoing reporting and updating obligations under the Act - failure to adhere to this could result in a criminal offence.
Summary of the Register
The Register itself affects any OE (being a non-UK registered body with legal personality under the law by which it is governed) that owns or acquires certain property in the UK (with certain exceptions).
Generally, in respect of land registration requirements: -
1. For land in England and Wales, if an OE owns property (freehold or leasehold for more than 7 years), the entity must be placed on the Register. This requirement does not affect an OE who became owner of a property prior to 1 January 1999.
2. For land in Scotland, if an OE owns property (heritable or leasehold titles for more than 20 years), the OE must be placed on the Register. This requirement only applies where an OE’s title has been registered in the Land Register of Scotland on or after 8 December 2014.
The Register provides information about the OE and its beneficial owners along with issuance of an allocated overseas entity ID number. Such ID number would be included in applications made to the relevant Land Register in England & Wales and Scotland. The Register is publicly available at Companies House.
Annual Reporting Requirement
Whilst many OEs will have initially complied with the requirement (under the Act) to be placed on the Register, there are ongoing reporting requirements. Under the Act, an OE must make an annual filing to Companies House to confirm whether or not there have been any changes to the details of OE’s beneficial owners (even in the circumstances where no changes have occurred).
The annual filing must be made within 14 days of the end of each 12 month ‘update period’ – the first of such period will be 12 months starting from the date of initial registration at Companies House. An OE may shorten the ‘update period’ by notifying Companies House. The Register contains the date on which the next annual update is due to be made by an OE.
Failure to submit the filing within the applicable timeframe will result in a breach of the Act, committing a criminal offence and facing penalties/fines. Furthermore, if the OE fails to make the filing, it will lose its registered status which will result in the OE being unable to buy, sell, lease or charge property. Under the Act, there are no concessions granted to an OE should they miss the filing deadline.
Considerations for transactions involving Overseas Entities
If a party is proposing to enter into a transaction with an OE (such as buying or taking a charge over land), appropriate due diligence should be carried out to ensure that the OE is on the Register and consideration should be given when the OE is next due to update the Register as this may affect timings of the transaction in question. In the event there is a breach under the Act, it would be expected that completion of the transaction could not occur until the OE has remedied the breach by making the annual filing.
If a lender is financing a property acquisition or if security over land is to be granted by an OE, it is expected that evidence that the OE is registered and not in breach of its updating obligations under the Act would be a condition precedent to funding. Lenders might also want to consider requesting confirmation in legal opinions that searches have been completed against the Register to establish whether the OE is registered.
As regards to existing finance arrangements, should an OE fail to make their annual statement, it would likely result in a breach of the undertakings and/or representations contained in underlying finance documentation. Any Lender involved would want to ensure that an OE remedies any breach under the Act.
Conclusion
Companies House have announced their service for receiving annual statements is now open. In light of the anniversary of the Act, it is important for OEs to be aware of their reporting deadlines and to take steps to comply with their annual filing requirements. As explained above, the consequences for failing to make the annual statement are strict.
Finally, there may be further disclosure requirements imposed on OEs as a result of The Economic Crime and Corporate Transparency Bill which is undergoing consideration of amendments between the House of Commons and the House of Lords. For example, the Bill would require OEs to update the Register within 14 days of any change to the information previously provided to Companies House. This area is still under development but it is clear that the UK Government are focused on greater transparency to combat money laundering.
This article was written by banking and finance associate Samir Younes.