Transparency and Overseas Ownership of UK Property The Draft Registration of Overseas Entities Bill

The drive to enhance and improve transparency in the beneficial ownership of corporate entities generally began in earnest in March 2016 with the publication of a discussion paper to explore whether the Government should legislate to create a beneficial ownership register of overseas companies that own UK property or participate in government procurement. The result of that discussion was the publication of the Draft Registration of Overseas Entities Bill presented to Parliament in July of this year. The consultation period on this Bill ended on 17 September 2018. The Bill focuses only on ownership of UK property, there is no mention of government procurement. The Bill, if it enters into law, will require any overseas entity that wishes to own UK land to identify its beneficial owner(s) and managing officers and to register them on a public register at Companies House. The machinery of the Bill adopts that of the ‘People with Significant Control’ regime set out in Part 21A Companies Act 2006, That Act imposes obligations on a company which include

(i) Taking reasonable steps to identify and notify people with significant control of the company and registrable relevant legal entities
(ii) Recording information about those people in the PSC register at Companies House and keeping Companies House provided with updated information.

The Bill defines an ‘overseas entity’ as a legal entity (a body corporate, partnership or other entity that (in each case) is a legal person) that is governed by the law of a country or territory outside the UK.

The Application

An application by the overseas entity for registration must contain a statement that complies with s4(2) of the Bill being any of the following:

• That the entity has identified one or more registrable beneficial owners, that it has no reasonable cause to believe there are others, and that the entity is able to provide the required information about each registrable beneficial owner it has identified.
• A statement that the entity has no reasonable cause to believe that it has any registrable beneficial owners, in which case the entity must provide the required information about each managing officer of the entity.
• A statement that the entity has reasonable cause to believe that there is at least one registrable beneficial owner that it has not identified and/or that the entity is not able to provide the required information about one or more of the registrable beneficial owners it has identified, in which case it must provide the required information about the entity, the required information about each managing officer of the entity and the required information about each registrable beneficial owner that the entity has identified or so much of that information as the entity has been able to obtain.

The Required Information (Schedule 1 to the Bill)

The information about the entity that must be provided is:

(a)  its name;

(b) the country of incorporation or formation;

(c)  the registered or principal office;

(d)  a service address;

(e)  an email address;

(f)  the legal form of the entity and the law by which it is governed;

(g)  any public register in which it is entered and, if applicable, its registration number in that register.

The information about any beneficial owner that must be provided is:

(a)  name, date of birth and nationality;

(b)  usual residential address;

(c)  a service address;

(d)  the date on which the individual became a registrable beneficial owner in relation to the overseas entity;

‘Beneficial owner’ is defined in broadly the same way as that that in s5 Money Laundering Regulations 2017 and is, in precis, someone who holds more than 25% of the shares or voting rights in a company, has the right to appoint or remove the majority of the board or exercises significant control over the company.

The entity must identify its beneficial owner(s) before making the application for registration and must give an information notice under this section to any person that it knows, or has reasonable cause to believe, is a registrable beneficial owner (or knows the identity of the same)  in relation to the entity requiring them to state whether they are a beneficial owner and, if they are, provide information about the person in addition to any other relevant information requested by the entity. A failure to comply with such a notice or giving false information in response to it carries a maximum sentence of two years imprisonment.

The Updating Duty

Where an entity registers it is required by s7 to update within 14 days of the expiry of its anniversary of registration (see clause 7 of the Explanatory Notes to the Bill). A failure to do so will be a criminal offence punishable with a fine multiplied by every day of the default.

Failures to Register or to Update

The penalties for failing to comply with the Bill set a framework to drive behaviour and help ensure compliance. Failure to register as required, or comply with the updating duty will mean that the overseas entity will be unable to register as a proprietor of land in the UK – by an amendment to s85A of and Schedule 4 to the Land Registration Act 2002, or registering dispositions with the UK Land Registry. Making a disposition of land where the restriction is in place carries a maximum sentence of five years imprisonment.

Discussion

For the proposed Bill to have any effect when it becomes law there will need to be proper funding of both the Land Registry and of Companies House to deal with registration requests, and to develop sufficient capacity for fully automated registration. Many property holding companies are special purpose vehicles (SPVs)  and those incorporating them will need to ensure that there is sufficient time between incorporation and transaction to comply with registration at Companies House and the necessary information exchange. The Government intend that the proposed register will be in operation by 2021. Despite what might appear to be a long period for preparation, companies registered overseas ought to seek professional advice as to how to ensure compliance with this incoming regime so that purchases and dispositions of property (either by SPVs or more generally) are not frustrated by ignorance or breach of the new registration regime. Conveyancers and the estate agency sector in the UK ought to consider carefully the interplay between this regime and the requirements placed upon them by the due diligence requirements of the Money Laundering Regulations 2017.

Leon Kazakos