Overseas ownership of UK property – what you need to know

It is just possible that you have missed the news that Companies House has created a new register for overseas entities (OEs) which opened for registrations on 1 August 2022. The Register has been created under the Economic Crime (Transparency and Enforcement) Act 2022 (the Act). Before deciding whether you need to make an application to be included on the Register you need to consider the following questions:

• Am I an OE? For more information on what counts as an OE then please see my previous article on this subject (HERE). It covers more types of legal structure than you might think and the ‘overseas’ part is fairly literal; with the exception of Northern Ireland (which is separately regulated by the Act in any event) it includes an entity incorporated anywhere in the world outside the mainland UK. However, overseas owners of UK registered companies are not ‘entities’; any disclosure obligations for UK companies (regardless of ownership structure) are covered under the UK’s PSC regime.
• Do I own property in the UK? ‘Own’ broadly speaking includes owning either a registered freehold or leasehold property in England and Wales which was acquired at any time after 1 January 1999.  For some purposes it also means ‘owned’; if an OE did own a UK property but disposed of it after 28 February 2022 then it will still be required to complete the equivalent of a registration form (though it won’t be entered on the Register itself) and to disclose the title numbers and dates of relevant transactions which took place after that date.

If the answer to both of the questions above was ‘no’ then you can stop here.  Otherwise, read on to find out how you may be affected by the new Register and registration process.

I’m an OE who currently owns UK property with no plans to sell, lease or charge the property

The opening of the Register on 1 August now means you have until 31 January 2023 to complete a registration application, even if you have no intention of disposing or otherwise dealing with a property.  Failure to do so by the deadline date will be a criminal offence committed by both the OE and its managers and officers, and substantial daily fines will accrue.

If you haven’t already done so, you should be liaising with your advisers about compiling information on the OE’s beneficial owners (which has a special meaning under the Act) and/or those who exercise a management function on the OE’s behalf. BEIS (the government department responsible for the new legislation) has just published detailed technical guidance on the registration process and its interpretation of a number of aspects of the Act.  You can find details of the guidance HERE. The Act requires the OE to give a formal notice to anyone who it has reasonable cause to believe is a beneficial owner (as defined) and to require them to confirm prescribed information to enable the OE to make its registration application.  The beneficial owner has one month to respond from the date of the OE’s notice, but provided all beneficial owners have provided the relevant information to the OE, it can make its registration application sooner.  If there are no qualifying beneficial owners identified, then the details of the OE’s managers (also a concept with a particular meaning under the Act) need to be provided instead.

Once the OE has compiled information, it needs to supply it to a ‘verifier’ for them to confirm its authenticity and completeness.  See below for more details on the process of verification.

In the early stages of creation of the new register (estimates vary between there being 35,000 and 38,000 OEs that need to submit a registration application) it may be better to wait a short while before making an application for registration if there are no immediate transactions planned.

I am an OE in the course of selling/leasing/re-financing a UK property

Whilst the same six-month registration window exists it is much more likely that the counterparty to your transaction will want you to register as soon as possible. There is always a risk that the transaction may be delayed so that completion does not take place until after the end of the registration period. If so, then whoever is on the other side of the transaction may not be able to get their registration processed by the Land Registry. The easiest way to avoid this is to make sure that the OE is already registered and has provided its ID information.

I am an OE in the course of buying/leasing a UK property

For OEs acquiring new properties there is no moratorium or registration window. You should apply for registration as soon as possible. After 5 September you will no longer be able to make an application to the Land Registry to register any new title that you have acquired, unless you can provide evidence of your registration ID at the time of making the application.  We understand that Companies House will be prioritising applications being made by buyer/tenant OEs for this reason.

I am an OE that owned UK property but disposed of it all

See our earlier comments. If an OE has disposed of property on or after 28 February 2022 then it still has to go through the equivalent of a registration exercise (although we understand that the OE will not actually appear on the Register if it no longer owns land). In addition, the OE must make a declaration (called a s.42 statement) disclosing the details of the date(s) and title numbers which it has disposed of. Companies House will record this information separately and it will still be publicly viewable for a period of two years from the date of making the original statement.  If all of your property was disposed of before 28 February this year there are no registration or disclosure requirements. An application to register would only be required if the OE wanted to acquire property again in the future.

What does ‘verification’ of my registration application involve?

Whilst this was referenced in the Act, until the new Register and associated regulations were published at the end of July it was not clear what verification meant in this context. New regulations confirm that the verifier must itself have a place of business in the UK and be a ‘regulated’ entity. Broadly this means regulated by a professional body such as the Financial Conduct Authority, SRA (the regulator for solicitors) or similar. BEIS clearly expected that UK law firms would apply to become verifiers (a verifier has to apply to Companies House for its own ID number to carry out verification processes on behalf of OEs). However, the Law Society issued practice guidance at the end of July strongly suggesting that UK law firms would not be best placed to undertake verification exercises because of the requirements of the regulations and associated criminal liabilities which law firms could be exposed to. For this reason Birketts has no plans to offer a verification service at this time. We are, however, aware of a number of commercial organisations which are able to offer such a service; if you need further assistance with this then please contact us.

Whilst it is possible for the verifier to just provide verification services, it seems that BEIS expect verifiers to also make the substantive registration applications. Indeed, the regulations make it a more straightforward process if the verifier makes the application to register the OE at Companies House rather than a third party.

Is anything happening at the Land Registry?

Now that the Register is open for business, the Land Registry has been gearing itself up for the next stages of the Act, which will come into force on 5 September 2022. Land Registry has already been reviewing its own records to identify existing registered titles owned by OEs.  It will then place a restriction on those titles to prevent the OE entering into transactions without providing evidence that the transaction complies with the new Act (i.e. that the OE is registered, has an ID and complies with the annual return process set out in the Act). For existing OEs holding properties, the restriction will not ‘bite’ until 1 February 2023 (i.e. the end of the registration window).  Please note that Land Registry will not contact an OE until after it has completed the restriction exercise on its registered titles.  So you may receive an unexpected letter from the Land Registry to tell you that they have already registered a restriction on dealings as prescribed by the Act.

On any new titles acquired by an OE the restriction on dealing will be lodged automatically by the Land Registry as part of the registration process. As mentioned above, if an OE applies to register a title after on or after 5 September 2022 and cannot provide a valid OE ID number then the Land Registry will automatically cancel the registration application.  This will cause issues for the OE applicant, any funder taking security from them and the seller (who will still be shown as the ‘owner’ of a property they believe they have sold).

Summary

To sum up, you should be carrying out the following steps:

• Check if you meet the definition of an OE.
• If so, collect the information needed to submit a registration application.
• Discuss arrangements with your advisers to have the registration application verified by an approved verifier.
• Submit the application as soon as reasonably practical to do so.
• Be ready to provide your new OE ID number on any future property transactions.