What is the new requirement?
The end of January is fast approaching and with it is the 6 month transitional period which commenced on 1 August 2022 within which any overseas entity that owns real estate (be it land or property) in the UK (England & Wales, Northern Ireland and Scotland) whether that be freehold or a leasehold interest granted for a term of more than 7 years on or after 1 January 1999 in England and Wales (or in Scotland a heritable or leasehold interest granted for a term of more than 20 years on or after 8 December 2014), must be registered at Companies House on the Register of Overseas Entities.
Overseas entities are companies and other organisations that are subject to the laws of a non-UK country.
This requirement was introduced by the Economic Crime (Transparency and Enforcement) Act 2022 (the "Act"), and was set out in our article of 29 July 2022, which gives more detail on the requirements.
What are the consequences of non-registration?
Any non- compliant overseas entity post 31 January 2023 will not be able to dispose of, charge or lease their real estate that would require registration at the Land Registry because UK Land Registries will refuse to register certain property transactions (including sales and purchases and the grant of security over property) unless the relevant overseas entity is registered on the Register. Clearly the implications of non-registration will be wide reaching for all parties to a transaction including buyers, sellers, landlords and tenants. Risks include transactions being delayed or even aborting, particularly if one of the parties has a fixed completion deadline.
It will of course also have consequences for overseas entities that are seeking to re-finance or charge properties and portfolios which can often form part of wider commercial plans.
What are the non- commercial consequences?
Aside from commercial consequences for overseas entities, there is also the risk of criminal sanctions and fines ranging from £500 to £2,500 per day and/ or the possibility of imprisonment for up to 5 years.
What do overseas entities need to do?
Any overseas entity that wants to buy, sell, charge or transfer property or land in the UK must register their beneficial ownership information and/ or their managing agents with Companies House by 31 January 2023. This also applies to leases that are granted to or by an overseas entity for a term of more than 7 years (over 20 years in Scotland) and that are therefore registrable at the Land Registry.
This registration requirement is not only applicable to future transactions and will also apply to:
- all overseas entities that have disposed of property or land after 20 February 2022 who will also need to give details of those dispositions; and
- all overseas entities that already own or lease land or property in the UK who must also register on the Register of Overseas Entities.
For Northern Ireland, overseas entities only need to register land or and property bought or leased on or after 1 August 2022.
What are the implications for solicitors?
Any solicitor that is asked to verify an overseas entity purchasing UK property will also leave themselves open to criminal prosecution and may be professional negligence if they are non-compliant with the Act so knowing the requirements of the Act is key as well as flagging to client's early on in transactions if one of the parties is an overseas entity. Other key points that solicitors should consider are:
- the need to identify whether or not an overseas entity is correctly registered as part of their due diligence;
- including contractual obligations for a overseas entities to register where required;
- undertakings to attend to registration for the benefit of lenders and other parties with an interest.
What do overseas entities need to do post registration?
Going forward, overseas entities will be subject to an annual filing requirement and must inform Companies House of any changes to the beneficial ownership or otherwise confirm that there has been no material change to the beneficial ownership.
DWF's Real Estate team has produced a comprehensive guide to the key provisions, registration formalities and potential risks for clients. To find out more about the impact of the Act please contact Jenn Berritt or Neal Bhattacharyya.