The Economic Crime (Transparency and Enforcement) Act 2022 (the "Act") established a Register of Overseas Entities (the "OE Register") that own or have owned freehold or leasehold property in the UK since 1 January 1999. On 31 January, the 'transitional period' for Overseas Entities ("OEs") to register details of their beneficial ownership with the newly established OE Register at Companies House came to an end. If an OE is unregistered at this point, they will not be able to dispose of freehold property, grant a lease of more than 7 years, or grant a charge until they are registered.
If you are an occupier looking to take a lease of a property in England or Wales where the landlord is an OE, you will be unable to register your lease at HM Land Registry if the landlord is not correctly registered at Companies House. A lease with a term of over 7 years should be registered at HM Land Registry in order to become a legal interest.
We consider five practical considerations that a UK based commercial tenant needs to be aware of when taking a grant of a lease from an OE.
1. Is the landlord an Overseas Entity?
An OE is a legal entity (such as a corporate body or partnership) that is governed by the law of a country or territory outside the UK. Remember, this includes companies incorporated in the Channel Islands, the Isle of Man or the Republic of Ireland. The rules do not apply to off shore private individual landlords.
2. Is the landlord registered on the OE Register?
Ask for confirmation on the landlord's registration status as soon as you are aware that it is an OE. If the landlord is a corporate body, you can check this without charge on the Companies House website by searching against the corporate body's name. If the landlord has not attended to registration yet, the heads of terms should refer to the deal being conditional on the landlord completing their registration. Likewise, your solicitor should be asking relevant due diligence questions at the outset of the transaction.
Top tip: A company registered on the OE Register will have an ID number starting with "OE". These numbers are not to be confused with those starting with "FC" which are foreign company registration numbers.
3. Is there any impact on the deal timeline?
If the landlord hasn't completed their registration then there may be delays in completing your transaction. You should not complete a new lease if the landlord is not yet registered and the landlord could itself face criminal sanctions for doing so. The process to register is not a quick or straightforward task and the landlord will almost certainly need assistance from professionals.
If completion of your new lease is time critical because you plan to move your business to the new premises from an existing premises then you may need a plan B to ensure you do not have to vacate the existing premises before being able to move into the new premises (for example entering into a short term licence of the existing premises where the current arrangements are close to expiry).
4. What HM Land Registry requirements should you be aware of?
HM Land Registry will enforce the provisions of the Act by placing a restriction on the landlord's registered title which will prevent registration of a new lease that is dated from 1 February 2023 onwards where at the time of grant the landlord was not registered on the OE Register. Although in theory, registration of leases granted by an OE pursuant to an agreement for lease entered into before 31 January 2023 would not be caught by such a restriction, it is not clear in practice how HM Land Registry will deal with such transactions so the safest option is to ensure that before the lease is completed that the landlord is on the OE Register. The Act also provides that some OEs will be exempt from registration but there are no regulations in place yet setting out which OEs can claim this exemption. If the landlord is insisting that they can rely on an exemption or an exception, do not take this at face value. Ask your solicitor to prioritise reviewing this and raising the relevant due diligence enquiries to establish the position before completion.
5. Taking a lease of property in Scotland or Northern Ireland?
If you are taking a lease in Scotland or Northern Ireland then the rules are slightly different. OEs only need to register if they acquired land after 8 December 2014 in Scotland and after 1 August 2022 in Northern Ireland. There are also differences with registrable leases: in Scotland these are leases granted for a term of more than 20 years and, in Northern Ireland, for more than 21 years.
Scotland also has a separate transparency regime, the Register of Persons Holding a Controlled Interest in Land ("RCI") which launched on 1 April 2022. We understand that once the Register is operational, the Scottish Government will review the extent of any duplication of the legislation and then determine whether OEs can be removed from the scope of the RCI. For the time being, dual registration of OEs will be required.
The Act came into force last year. Read about it in more detail here >
To find out more about the points raised in this article please contact:
Velida Pudic - Real Estate, England
David McNeish - Real Estate, Scotland
Graeme Corry - Real Estate, Northern Ireland