On 1 August 2022, a new Register of Overseas Entities (ROE) was created under the Economic Crime (Transparency and Enforcement) Act 2022 (Act). The ROE is a public register maintained by Companies House, showing the beneficial owners of UK property and there is now an obligation on Overseas Entities (OEs) to register on the ROE for most transactions involving land or property which are or will be registered at the Land Registry.
In this alert we will highlight the main aspects of this legislation which impacts on both residential and commercial property, whether buying, selling, leasing, transferring or charging land where an OE is a party.
What is an Overseas Entity?
An OE is defined as a body corporate, partnership or other entity that is a legal person governed by the law of a country or territory outside the United Kingdom (UK includes Scotland, Wales and Northern Ireland). This would include overseas companies, partnerships, corporations sole, governments and public authorities. For the avoidance of doubt, an OE includes entities incorporated in the Republic of Ireland, Channel Islands and the Isle of Man.
Which transactions are affected by the Act?
The land registration aspects of the Act will apply from 5 September 2022 with the result that most transactions involving registration at the Land Registry will be affected - specifically those listed below:
- OEs who are buying leasehold or freehold properties, or taking a new lease of properties that need to be registered at the Land Registry (e.g. leases for a term of more than 7 years)
- OEs who already own properties which have been registered since 1 January 1999 (properties owned by an OE before that date are unaffected)
- OEs who have since 28 February 2022, sold, charged or leased property registered at the Land Registry (details have to be submitted to Companies House)
- Applications for first registration where the applicant is an OE
- Adverse possession applications to register an OE as proprietor
Transitional period for existing OEs owning registered land
For existing properties already held by OEs since 1 January 1999, there will be a transitional period of six months to enable them to register on the ROE. This period runs from 1 August 2022 and will end on 31 January 2023 and during this time an OE can dispose of its property without having to register on the ROE. Companies House has sent a notice to OEs (over 31,000) who already own or lease property or land in the UK to warn them of the deadline to register on the ROE by the 31 January 2023.
Registration on the ROE
In order to be registered on the ROE (a public register) an OE must provide information to Companies House about their beneficial owners following a verification process through a UK-regulated agent. Once entered onto the ROE, an OE will be issued with a registration ID number (OE ID) which can then be used for Land Registry applications. In addition the Act requires the OE to update its registered information annually.
Land Registry title restriction
To ensure compliance with the Act, the Land Registry will be registering restrictions on titles to prevent dispositions in breach of the legislation as set out in para (a) and (b) below:
(a) the Land Registry will register a restriction in one tranche against all property owned by OEs that has been registered since 1 January 1999 as follows:
“After 31 January 2023 no disposition within section 27(2)(a), (b)(i) or (f) of the Land Registration Act 2002 is to be completed by registration unless one of the provisions in paragraph 3(2)(a)-(f) of Schedule 4A to that Act applies”
Where this restriction has been registered an OE ID will not be required as long as a valid application to register the disposition is made before the end of the transitional period.
(b) the following restriction will be entered into registers for all OEs applying to be registered as proprietor on or after 1 August 2022:
“No disposition within section 27(2) (a), (b)(i) or (f) of the Land Registration Act 2002 is to be completed by registration unless one of the provisions in paragraph 3 (2) (a) – (f) of Schedule 4 A to that Act applies”
Note that this restriction will prohibit the registration of a disposition where the OE was not registered on the ROE at the time of the disposition unless the disposition falls within one of the exceptions referred to in the restriction.
Risks of non-compliance
Failure to comply with the Act is a criminal offence both for the OE and its officers, punishable by a fine and/or imprisonment. This means that any completion monies for transactions which fall foul of the Act could become the proceeds of crime. In addition, the Land Registry will not proceed with any application for registration unless an OE ID is submitted (where it is required) meaning that the application will be cancelled.
Given that the Land Registry already faces backlogs and ever-increasing timeframes for registration, to avoid unnecessary delays and to ensure that transactions are being registered promptly, we recommend the following:
- If disposing of property to an OE, ensure that the entity is aware of the need to and has begun the process of registering on the ROE
- Ensure that conducting searches of the ROE becomes standard practice in transactions involving OEs, to ensure that they are registered and the information is up-to-date
- Be prepared to produce evidence of the OE’s corporate status and their powers to hold and deal with land in England and Wales, such as a company’s certificate of incorporation
- Consider making contractual arrangements to avoid any issues with registration, such as express provisions requiring a seller or buyer that is an OE to produce an OE ID by a certain number of working days before contractual completion. This could be particularly helpful for auctions, where the buyer is unknown at the outset of the transaction.
- Check the date when the OE acquired the property e.g. complex transitional provisions apply if it acquired during the period between 1 August 2022 and 4 September 2022 or on or after 5 September 2022 - checking dates is key when buying from an OE.