Economic Crime (Transparency and Enforcement) Bill 2022 and the Register of Overseas Entities: who really owns this land?

Overseas Entities that acquire "Qualifying Estates" (see below) in the United Kingdom will be required to register with the Registrar of Companies before applying to register their title to such estates at HM Land Registry. When the registration is complete, Companies House will allocate an overseas entity ID to the entity, which should then provide this ID number to HM Land Registry with their application for registration of title to their estate. HMLR will place a restriction on the title register of the Qualifying Estate, preventing it from transferring or charging the land, or granting a lease for more than 7 years if it does not maintain its registration as an Overseas Entity, unless it is exempt.

In addition to the general duties in the Act, there is provision for the Secretary of State to serve notice on an Overseas Entity requiring it to apply for registration in the Register if the entity is the registered proprietor of a relevant interest in land and, at the time the notice is given, the entity is not registered in the Register, has not made an application for registration that is pending and is not an exempt Overseas Entity. The entity will have 6 months in which to comply.

An "Overseas Entity" for this purpose is a body corporate, partnership or other entity governed by the law of a country or territory outside the United Kingdom and is a legal person under the law by which it is governed.

Trusts do not themselves have legal personality, and therefore cannot directly hold land. However, the legal ownership of trust assets, including land, must either be vested directly in trustees, or in a legal entity of some kind. The Act captures circumstances in which an Overseas Entity is being used by a trust to hold land in the UK by means of the concept of "beneficial owner", described in more detail below. Therefore, an Overseas Entity holding land on behalf of a trust will be required to register with Companies House, even though the trust itself will not. The Register will set out the name of the entity, and the names of the trustees or any other person that exerts significant influence and control over the entity that is being registered, subject to specified exceptions. The trust itself may need to be registered with the Trusts Registration Service if it meets their criteria.

A freehold interest or a leasehold interest granted for a term of more than 7 years from the date of grant.

Beneficial owners will be identified using similar criteria as for people with significant control under the current UK PSC regime: i.e. any person who:

• holds, directly or indirectly, more than 25% of the shares of the entity;
  
  
• holds, directly or indirectly, more than 25% of the voting rights in the entity;
  
  
• holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the entity;
  
  
• has the right to exercise, or actually exercises, significant influence or control over the entity; or
  
  
• has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or a partnership, unincorporated association or other entity that is not a legal person under the law by which it is governed, where the trustees of that trust, or the members of that partnership, unincorporated association or other entity, meet any of the conditions specified above (in their capacity as such) in relation to the entity.

Where the relevant entity does not have a share capital, a reference to holding shares in that entity is a reference to holding a right to share in the capital or, as the case may be, the profits of that entity. A reference to the voting rights in a legal entity is to the rights conferred on shareholders in respect of their shares (or, in the case of an entity not having a share capital, rights conferred on members) to vote at general meetings of the entity on all or substantially all matters.

The concept of indirect ownership is similar to that in the PSC regime, i.e. ownership of a chain of entities which includes the holder of a 25% stake or other control rights as set out above.

Information must be provided in respect of the Overseas Entity and its beneficial owners.

The required information about an Overseas Entity is: (a) its name; (b) its country of incorporation or formation; (c) its 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; and (g) any public register in which it is entered and, if applicable, its registration number in that register.

Where a registrable beneficial owner is an individual, the required information about the owner is: (a) their name, date of birth and nationality; (b) their 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; and (e) which of the beneficial ownership conditions set out above is met in relation to the registrable beneficial owner and a statement as to why that condition is met.

Similar requirements will apply where the beneficial owner is a legal entity or government or public authority. The information must be updated within 14 days of the end of a 12-month "update period". Failure to comply with this updating duty can result in a daily default fine. The information on the Register will be open to the public, apart from personal data such as dates of birth or residential addresses.

The Secretary of State may, by giving written notice to a person, exempt the person under this section if satisfied that to do so is necessary: (a) in the interests of national security; (b) in the interests of the economic wellbeing of the United Kingdom; (c) for the purposes of preventing or detecting serious crime.

In addition, where the Overseas Entity is a "registrable beneficial owner" (i.e. it is subject to similar disclosure requirements by virtue of being subject to this new registration regime, the UK PSC regime, listed on a UK or EU Regulated Market or otherwise) then it will generally not be necessary for entities further up the chain to register.

Overseas entities which have been registered proprietors of Qualifying Estates in England and Wales pursuant to applications made since 1 January 1999 will be required to register with the new Register within 6 months of commencement of the Act (originally 18 months but amended in the House of Commons). This allows overseas property owners a transitional period of 6 months in which to either dispose of their Qualifying Estate or to apply to the Register.

Unless certain exceptions apply, within 12 months of the Act coming into force, HM Land Registry will place a restriction on the title of these Qualifying Estates, prohibiting dispositions including sales, leases or charges, which restriction will take effect 6 months after the commencement date (originally 18 months but amended in the House of Commons). The idea of this is that any third party who looks at the title register of land whose proprietor is an Overseas Entity will see a restriction on the title register and be able to take the restriction into account when considering whether or on what terms to enter into a contract with the Overseas Entity.

Once the Act is in force, an Overseas Entity which owns a Qualifying Estate in England and Wales which is currently unregistered land will not be able to register their estate at HM Land Registry unless they can provide an overseas entity ID or establish that they are exempt.

Failure to register as an Overseas Entity will preclude registration of Qualifying Estates with the Land Registry. Unless the entity is an exempt Overseas Entity at the time of its application to HM Land Registry, the effects of this are that:

• an Overseas Entity which has bought a Qualifying Estate in England and Wales (either a freehold or leasehold of over 7 years) will be unable to obtain legal title to the land without being a registered Overseas Entity. It will only have an equitable interest in the land, and legal title will remain with the seller/landlord.
  
  
• Similarly, any Overseas Entity which owns unregistered land will not be able to register it voluntarily or in response to a registration trigger (such as entry into a charge) without becoming a registered Overseas Entity.
  
  
• If an Overseas Entity makes a disposition (such as a transfer of the estate) to a third party at a time when it is not a registered Overseas Entity, is not exempt, and no exceptions apply, not only will that disposition be incapable of registration, but also the third party to the transaction will not be entitled to be registered as the proprietor at HM Land Registry. An Overseas Entity which has purported to dispose of the estate in these circumstances, alongside any officers of the entity who are in default, will have committed a criminal offence. The transaction will not be void but will only be effective in equity. Any subsequent registration of the Overseas Entity cannot correct this situation, unless certain exceptions apply. As it will not become the registered proprietor, the buyer/tenant/lender will also be unable to further dispose of its interest in land. Parties entering into a transaction with an Overseas entity should therefore ensure that it is either exempt or registered with the Register on the date of completion of a disposition.
  
  
• There is a protection for innocent third parties whereby the Secretary of State may consent to the registration of a disposition that would otherwise be incapable of registration because it would be prohibited by a restriction on title if they are satisfied that (1) at the time of the disposition, the person to whom it was made could not have known, and could not reasonably have been expected to have known, that the disposition could not be registered, and (2) in all the circumstances it would be unjust for the disposition not to be registered. It is not yet known in what circumstances this remedy will be available in practice.
  
  
• The Act will contain protections for lenders so that once a charge has been successfully registered at HM Land Registry, any subsequent failure by the Overseas Entity to comply with the updating duty will not prejudice the ability of the registered chargeholder (or a receiver appointed by them) to exercise a power of sale or leasing in respect of the estate.

The Bill includes various offences for non-compliance, punishable by fines and imprisonment.

When a registered Overseas Entity ceases to be registered at HM Land Registry as the proprietor of a Qualifying Estate, it will be able to apply to Companies House to be removed from the Register. Its application must contain (a) a statement confirming that it is not registered as the proprietor of a relevant interest in land; (b) the statement and beneficial ownership given in its last update; (c) a statement that the entity has complied with its duty to take steps to identify registrable beneficial owners; and (d) the name and contact details of someone at the entity. This means that an Overseas Entity selling land should require the buyer to notify them once the transfer to the buyer has been registered at HM Land Registry, so that the seller knows when it is able to apply for removal from the Register.