UK Real Estate Transactions With Overseas Entities

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On 1 August 2022, a new Register of Overseas Entities (ROE) was launched at Companies House pursuant to the Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA). In a nutshell, any overseas entity wishing to buy, sell, lease or charge property in the UK will be required to provide details of its beneficial owners or managing agents to Companies House for inclusion on a public register and to obtain a unique Overseas Entities ID (OE ID). The OE ID is important as, with effect from 5 September 2022, HM Land Registry will be prevented from registering any disposition made by an overseas entity that is caught by the ECTEA without a valid OE ID.

The Register has been implemented to help prevent individuals from using property or land in the UK for money-laundering purposes by increasing transparency in the ownership structure for overseas entities.

What entities are affected?

For the purposes of the ECTEA, an overseas entity is a legal entity “governed by the law of a country or territory outside of the UK.” The definition of legal entity includes a body corporate, partnership or other entity that (in each case) is a legal person under the law by which it is governed. Although the ECTEA refers to “exempt overseas entities” that will not be subject to the registration requirements, as at the date hereof, there is no further indication as to what overseas entities will be exempt.

What transactions are affected?

The changes implemented by the ECTEA are far-reaching and have retrospective application. In essence, the new updated land registration rules will affect:

1. Overseas entities that already own freehold property or leasehold property granted for a term of more than seven years (and who were registered as the proprietors of such interest at HM Land Registry after lodging an application made on or after 1 January 1999).

An overseas entity that already owns freehold property or leasehold property granted for a term of more than seven years and was registered as such after an application to HM Land Registry made on or after 1 January 1999, must provide details of its beneficial owners or managing agents to Companies House and obtain a valid OE ID.

HM Land Registry is under a duty to enter a restriction on the title register of the overseas entity. The restriction will take effect from 1 February 2023 and will prevent the overseas entity from transferring the property, granting a lease for a term of more than seven years or granting a legal charge over the property, unless it is registered at Companies House with a valid OE ID, is exempt or has confirmed that one of the permitted exceptions applies.

Any overseas entity not registered at Companies House before 31 January 2023 will also be committing a criminal offence under the ECTEA.

2. Overseas entities that have disposed of freehold property or leasehold property granted for a term of more than seven years since 28 February 2022.

Overseas entities that have disposed of property since 28 February 2022, will still need to provide Companies House with details of their registrable beneficial owners or managing officers as well as details of the relevant disposal. This will apply even if the overseas entity no longer has an interest in the property.

3. Overseas entities acquiring freehold property or leasehold property granted for a term of more than seven years between 1 August 2022 and 4 September 2022 (inclusive).

For applications to register an overseas entity as proprietor of freehold property or leasehold property granted for a term of more than seven years made between 1 August and 4 September 2022 (inclusive), no OE ID will be required. However, a restriction will be entered on the title register of the overseas entity with immediate effect on or after 5 September 2022 preventing the overseas entity from transferring the property, granting a lease for a term of more than seven years or granting a legal charge over the property unless it is registered at Companies House with a valid OE ID, is exempt or has confirmed that one of the permitted exceptions applies.

4. Overseas entities disposing of freehold property or leasehold property granted for a term of more than seven years between 1 August 2022 and 31 January 2023 (inclusive).

A six-month transitional period, beginning on 1 August 2022 and ending on 31 January 2023 will give overseas entities an opportunity to dispose of property without having to register with Companies House. Therefore, no OE ID will be needed to register a disposal of freehold property or leasehold property granted for a term of more than seven years at HM Land Registry during this window. Having said this, the ECTEA does still require the overseas entity to provide details of the disposition and beneficial ownership of the entity to Companies House.

Beginning on 1 February 2023, the requirement to register at Companies House and to obtain a valid OE ID will apply.

5. Overseas entities acquiring freehold property or leasehold property granted for a term of more than seven years on or after 5 September 2022.

Any overseas entity that acquires freehold property or leasehold property granted for a term of more than seven years on or after 5 September 2022 must have a valid OE ID before making an application to HM Land Registry. If the OE ID is not valid at the time of the application, the Land Registry guidance states that the application to register the interest will be rejected. The implications of the ECTEA are therefore most pressing for those overseas entities wishing to acquire UK property on or after 5 September 2022.

In such circumstances, HM Land Registry will add a restriction to the title register of the overseas entity that will prevent the overseas entity from transferring the property, granting a lease for a term of more than seven years or granting a legal charge over the property unless it is registered at Companies House with a valid OE ID, is exempt or has confirmed that one of the permitted exceptions applies.

What are the consequences of not complying with the new requirements?

Failure by the proprietor to make an application to register an overseas entity at Companies House on or before 31 January 2023 is an offence punishable by a fine and/or imprisonment. The overseas entity will also be restricted from dealing with its property until the above registration requirements are met.

What should we do next?

Overseas entities with existing UK property interests should register their beneficial ownership information with Companies House as soon as possible before 31 January 2023. The same applies to overseas entities that recently disposed of UK property.

Those parties currently involved in a UK real estate transaction involving an overseas entity will need to act with more speed to ensure that the overseas entity has obtained a valid OE ID prior to completion. It would be appropriate to make this a condition to completion if the transaction is likely to complete on or after 5 September 2022.

Generally, those dealing with overseas entities on UK property transactions should consider how the new rules will impact the registration of the legal title at HM Land Registry.

Overseas entities that are registered proprietors of property in the UK should also

consider seeking professional advice on how to obtain a valid OE ID and/or how to show compliance with a restriction on the registered title where an overseas entity intends to make a relevant disposition.

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.

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