New Compulsory Register of Beneficial Owners of Overseas Entities Holding UK Real Estate

by Ropes & Gray LLP
Contact

Ropes & Gray LLP

The government has recently published its response to a call for evidence on the proposed UK register of beneficial ownership for overseas entities (the “OEBO register”) with implications for overseas entities that currently, or in the future propose to, own or lease UK real estate, as well as lenders lending to such overseas investors. The OEBO register will be the first of its kind in the world. It will be available for the public to view online at no cost and will, when reviewed alongside publicly available Land Registry title documents, reveal legal and beneficial owners of all registered UK property. The new register will create an additional layer of due diligence on future UK property transactions, it could impede transactions if not complied with and it will impose an initial and ongoing compliance burden on those owning and leasing registered UK property. Failure to comply with the new regime will result in criminal liability. With a draft Bill intended to be published in summer 2018, it is expected the OEBO register will become operational in 2021. We set out below the proposed scope of the OEBO register regime and next steps for those affected.

What is a beneficial owner?

The OEBO register will require disclosure of beneficial owners in a similar way to the PSC register already in place for companies registered in England and Wales, being broadly any person that directly or indirectly:

  1. holds more than 25% of the shares (or rights to the capital or profits) or voting rights (or equivalent) in an entity; or
  2. has the power to appoint or remove the majority of directors on the board of a company (or equivalent managing officer(s) of an entity); or
  3. exercises (or has the right to exercise) significant control or influence over the entity (as detailed in the statutory guidance issued in connection with the PSC register).

Who is required to comply?

The intention is that all legal forms of entities (apart from trusts) that can hold UK real estate will be subject to registration. The obligation on overseas entities will be to take reasonable steps to ascertain who its beneficial owners are. So far as an entity is unable to verify this information, or determines it has no qualifying beneficial owners to be named on the OEBO register, a statement to this effect can be made to Companies House. For such entities, disclosures must instead be made about the relevant entity’s managing officer(s) so that some information is available at least regarding the individuals involved in the upkeep of the properties they own. Potential exemptions are being considered for entities where transparency of beneficial owners is already in place, but the scope of these is not yet clear.

Period for registration

Although the government is still considering the time frame (initially a one-year period was proposed), it has indicated that overseas entities already owning UK real estate at the point the OEBO register is introduced, will have a period in excess of 12 months to comply with the registration requirement. Successful registration will provide an entity with a registration number, which it will need to provide to the UK Land Registry to register any future property transactions.

System of notes and restrictions at the Land Registry

The government’s proposals suggest a note will be placed on the registered titles of all qualifying UK property (both freehold and leasehold property with an initial term of more than seven years) after the expiry of a reasonable period (currently expected to be more than one year) from the date the OEBO register is formally introduced, thereby preventing overseas registered proprietors after the expiry of the relevant period from selling, leasing or granting security over their property without first complying with the OEBO register’s requirements. So far as existing overseas registered proprietors do not intend to comply with the requirements, they will need to dispose of their property within the relevant time period to avoid later becoming unable to deal with their property. For future overseas registered proprietors, once the measures are introduced, no new purchases, leases or charges will be registered by the Land Registry without a registration number, so they must comply immediately with the OEBO register’s requirements and, in any event, before completion of the relevant transaction in their favour.

The proposed note on registered titles means it will become a due diligence matter in future property transactions and all parties involved will be checking that their counterparties to the proposed transaction are complying, and have complied historically, with the OEBO register’s requirements.

Ongoing compliance

The OEBO register must be kept up-to-date and overseas registered proprietors will be required to submit periodic statements confirming their beneficial owners. Initially a period of two years was proposed, but after consultation, the government is considering increasing the frequency of the periodic updates. Importantly, criminal offences are intended not only for knowingly or recklessly providing false information, but also for failing to update the register periodically. Each update to the OEBO register by an entity will reset the date their next update is due, and, if no update is submitted within the relevant period, the registration number will become invalid.

Third party protections and lenders

While transparency is key, the UK government has highlighted the need for the new OEBO register requirements to be workable and proportionate so that they do not prevent or interfere with transactions of overseas entities in UK property. In particular, the proposed notes or restrictions on title registers should not prevent lenders from enforcing their security or repossessing and disposing of secured property to recover their debt.

It remains to be seen therefore whether the legislation relating to the OEBO register will require overseas lenders also to comply with its requirements. It appears it would otherwise be possible to circumvent the requirements of the OEBO register by having a charge registered against registered UK property in the name of an overseas lender and realising the value of property instead via the purported “lender”.

The government’s response to the consultation also does not clarify exactly what the consequence of entering into transactions with non-compliant overseas entities would be. There is a suggestion that a sale of registered UK property to a non-compliant overseas entity would result in the transfer only of beneficial title, not legal title; however it is not clear what that might mean for the relevant seller, any tenants or lenders of the relevant property.

Next steps

The government is now working out the exact framework and detail of the OEBO register. The draft Bill is expected to be published for scrutiny this summer and the register to become operational by 2021.

We will continue to monitor developments on the OEBO register, and in the meantime we would be happy to discuss any of the above issues and consider what they mean for your UK real estate investments and loans.

Printer-Friendly Version

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ropes & Gray LLP | Attorney Advertising

Written by:

Ropes & Gray LLP
Contact
more
less

Ropes & Gray LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.