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The enactment of the Economic Crime (Transparency and Enforcement) Act 2022 means that clients will need to review their property portfolio. Where overseas entities are the registered owners of UK property, information on such overseas entities and their beneficial owners will need to be disclosed on a new Companies House register. A failure to make the relevant disclosures carries the risk of a criminal conviction (for both the overseas entity and its officers) as well as restrictions on dealing with such UK property.



Register of Overseas Entities Owning UK Property – Key Requirements

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<h4>Executive Summary: the 30-second brief</h4>The enactment of the Economic Crime (Transparency and Enforcement) Act 2022 means that clients will need to review their property portfolio. Where overseas entities are the registered owners of UK property, information on such overseas entities and their beneficial owners will need to be disclosed on a new Companies House register. A failure to make the relevant disclosures carries the risk of a criminal conviction (for both the overseas entity and its officers) as well as restrictions on dealing with such UK property.<h4>Introduction</h4>Although the UK Government has long proposed a register of foreign owners of UK property, the recent invasion of Ukraine – and the consequent desire to ensure “dirty money” has nowhere to hide in the UK – has accelerated its introduction. Following an expedited passage through Parliament, the Economic Crime (Transparency and Enforcement) Act 2022 (the “ECA”) received royal assent on 15 March 2022. The ECA contains provisions in relation to sanctions, unexplained wealth orders, and, most notably for the commercial real estate industry, the introduction of a register at Companies House of overseas entities that own UK property along with their Registrable Beneficial Owners (as defined below) (the “Register”). With a significant proportion of UK commercial property held by overseas entities, the new requirements are likely to affect many participants in the UK real estate sector, including those with no connection to Russia or Ukraine. In this note, we have set out a summary of some of the key implications for any overseas owner of UK property.<h4>Who has to register and by when?</h4>An entity (a “Relevant Overseas Entity”) will have to apply to join the Register if it:<ul><li>is (i) governed by the law of a country other than the UK; and (ii) a legal person under such law (an “Overseas Entity”); and</li><li>became the registered proprietor of either (i) a UK freehold title; or (ii) a leasehold title of longer than seven years, in each case on or after 1 January 1999 and also still held such estate on or after 28 February 2022 (a “Qualifying Estate”).</li></ul>The regulations that bring the Register into force have not yet been enacted, but when they are and the Register does come into existence, a six-month transition period (the “Transition Period”) will follow.<h4>What must be disclosed on the Register?</h4>A Relevant Overseas Entity must disclose (among other things) its name, country of incorporation, and address for service.It also needs to disclose any natural person or government (a “Registrable Beneficial Owner”) that fulfils any of the following beneficial ownership criteria (the “Beneficial Ownership Criteria”):<ul><li>holding directly or indirectly more than 25% of the votes or shares in the Relevant Overseas Entity; </li><li>having the right directly or indirectly to appoint or remove a majority of the Relevant Overseas Entity's board; or</li><li>having the right to exercise or actually exercising significant influence or control over the Relevant Overseas Entity.<a id="_ftnref1" name="_ftnref1" href="#_ftn1" class="anchor">[1]</a></li></ul>To the extent that any company or another legal person (also a “Registrable Beneficial Owner”):<ul><li>fulfils the Beneficial Ownership Criteria; and </li><li>is subject to its own disclosure requirements under the ECA or the Companies Act 2006 (e.g., the persons with significant control (“PSC”) regime), </li></ul>then such company/legal entity should be listed as the Registrable Beneficial Owner and the Relevant Overseas Entity need not look further up the chain. The information to be disclosed in respect of a Registrable Beneficial Owner includes their name, date of birth, nationality, registration number, and residential address/principal office. Where the Registrable Beneficial Owner is a trustee, this fact will also have to be disclosed along with (among other things) the name of the trust and certain information in respect of the other trustees and the beneficiaries of the trust. Matters disclosed in relation to such trusts will not be publicly available. Rather strangely, it does not appear that information in relation to the underlying trust or its beneficiaries needs to be disclosed where the Relevant Overseas Entity is itself a trustee.<h4>Consequences of not registering</h4>The UK Government has introduced a range of criminal and practical consequences for Relevant Overseas Entities that fail to satisfy their registration obligations.Criminal offenceAll Relevant Overseas Entities will have to apply to the Register by the end of the Transition Period. Failing to do so will result in such Relevant Overseas Entities and each of its officers committing a criminal offence. If found guilty, they could be liable to a prison term of up to two years, or a fine, or both. Land Registry ConsequencesFollowing the end of the Transition Period:<ul><li>where a Relevant Overseas Entity has not applied to the Register, the Land Registry will (subject to the exceptions below) be obliged to enter a restriction on any disposition of an estate held by the same; and</li><li>if an Overseas Entity is entitled to become the registered proprietor of a Qualifying Estate and is not entered in the Register, the Land Registry, subject to the exceptions below, must not register the relevant disposition.</li></ul>The ECA provides limited exceptions to these obligations including where:<ul><li>the contract in relation to the disposition was entered into before (as applicable): (i) a restriction was entered on the register; or (ii) the Overseas Entity in question became entitled to be registered; or </li><li>the disposition: (i) relates to the power of sale/leasing conferred on the proprietor of a registered charge; or (ii) is to be made by an insolvency practitioner. </li></ul><h4>Ongoing legal obligations</h4>Once a Relevant Overseas Entity has registered, it will be required annually to update the information held on the Register or confirm there are no updates, failing which the Relevant Overseas Entity and its officers are liable for a fine. Where a Relevant Overseas Entity disposes of its UK property, it can apply to be removed from the Register and ongoing obligations under the ECA will cease.<h4>FAQs</h4>Will there be a requirement to register the historic beneficial owners of a Relevant Overseas Entity?A Relevant Overseas Entity that disposes of its Qualifying Estate on or after 28 February 2022 will have to disclose its Registrable Beneficial Owners (and any applicable information in relation to any trust of such Registrable Beneficial Owners), as at the moment immediately before such disposal. Such Relevant Overseas Entities will have to apply to the Register by the end of the Transition Period. To this extent, certain Relevant Overseas Entities will have to register their historic beneficial owners.Where a Relevant Overseas Entity holds its Qualifying Estate during (and beyond) the Transition Period or becomes entitled to hold a Qualifying Estate after the Transition Period, it will have to disclose its Registrable Beneficial Owners as at the date of the application.What happens if a Relevant Overseas Entity cannot identify its Registrable Beneficial Owners?The ECA provides that, where a Relevant Overseas Entity cannot identify all or any of its Registrable Beneficial Owners, it should disclose its managing officers in the Register. This could arise in certain trust structures, for example, where an overseas trustee company is an “orphan entity” and holds a Qualifying Estate on trust.<h4>Concluding remarks</h4>Whilst the obligations on Relevant Overseas Entities are not yet in force, the additional compliance burdens for such entities are already relevant: if a Relevant Overseas Entity owned a Qualifying Estate on or after 28 February 2022, it will in due course have to apply to the Register. In order to avoid the severe consequences of non-compliance, consideration should be given now to any Relevant Overseas Entities in a portfolio to prepare for the disclosures that will have to be made. There is a general offence if a person submits information that is false or misleading which could lead to a fine and/or imprisonment, so these obligations should be taken seriously.There are also some apparent gaps in the ECA such as those relating to Relevant Overseas Entities that are themselves trustees or indeed UK entities or individuals from any jurisdiction holding Qualifying Estates on trust for overseas beneficiaries. We are sure these will be closed in due course as the new regime is put into effect and the implementing regulations published.In the meantime, if you have any questions or require advice as to how to prepare for the ECA coming into force, please get in touch with your usual MoFo contact, and we would be happy to assist.William Jay, London Trainee Solicitor, contributed to the drafting of this alert<div data-type='hr' style='border-top: 3px solid #bbb'></div><a id="_ftn1" name="_ftn1" href="#_ftnref1" class="offset">[1]</a> Certain other criteria apply in respect of trusts, limited partnerships, and other unincorporated entities.