As anticipated in our previous article on 7 March 2022, Companies House launched the new register of overseas entities (the “ROE”) pursuant to the Economic Crime (Transparency and Enforcement) Act 2022 (the “Act”), so overseas entities can now apply to Companies House to be added to the ROE and obtain an overseas entity identification registration number (“OEID”). The obligations on overseas entities to register with Companies House will take effect from 5 September 2022, although the six-month transitional period under the Act started on 1 August 2022 and will expire on 31 January 2023. In this note we look at the implications and required actions for those holding UK property through an overseas entity.
The Act came into force in March 2022 as part of the UK government’s initiative to clamp down on criminals using UK property to launder their illegally obtained money. Among other things, the Act introduced the ROE, which requires overseas entities to register with, and provide details of their beneficial owners to, Companies House before the overseas entity can be registered as the legal owner of UK property or enter into certain property transactions. The provisions relating to the ROE became live with effect from 1 August 2022.
Does this apply to me?
Yes, if you:
- own a freehold or registered leasehold (i.e. lease of seven years or more) of property in the UK (unless the property was acquired before 1999); or
- have sold a UK freehold or leasehold property since 28 February 2022,
and, in either case, the property is/was held through any form of corporate vehicle which is not registered in the UK.
The regime does not apply if you own/lease UK property through a corporate vehicle registered in the UK (e.g. an English limited company) even if that vehicle is directly or indirectly owned by an overseas entity.
What do I need to do?
Register your overseas entity and its beneficial ownership with Companies House and update your registration annually.
When do I need to do it?
For property already owned you have until the end of the transition period, 31 January 2023, to apply for registration.
For new transactions (purchases, leases, charges) that will be registered at the Land Registry on or after 5 September 2022, you will need to apply for registration on the ROE before the property transaction can be registered at the Land Registry. You will, therefore, need to take action early in any relevant transaction.
Does it matter if I do not register?
Very much so!
Failure to register and update annually is a criminal offence with liability for both the overseas entity and its officers (e.g. company directors).
Additionally, failure to register will mean you cannot sell, lease, or charge the property.
The new rules will affect overseas entities (any legal entity that is governed by the law of a country or territory outside the United Kingdom) that:
- apply to register freehold or leasehold ownership of any UK property at the Land Registry after 5 September 2022;
- are already registered proprietors of UK property on 1 August 2022 (unless the relevant property was acquired before 1 January 1999); or
- disposed of UK property since 28 February 2022.
Overseas entities registering in the ROE must provide certain prescribed information about the registrable beneficial owners and managing officers of the overseas entity. This information needs to be updated annually. Companies House have issued a general guidance note on the ROE and the information required from overseas entities (see: https://www.gov.uk/guidance/register-an-overseas-entity).
The ROE will include information about the overseas entity and its beneficial owners and (if none of the beneficial owners meet the relevant criteria) the overseas entity's managing officers. An overseas entity must register in the ROE if it owns a freehold estate, or a leasehold estate granted for more than seven years, in land in the UK. The regime does not apply to any overseas entity which is a chargee of a registered charge(s) in UK property.
A beneficial owner for these purposes is, broadly, any person who is considered to have ‘significant influence or control’ over the overseas entity (for example, any person who holds more than 25% of the shares or voting rights or can otherwise exercise significant influence or control over it) including through a trust or partnership structure, mirroring the People with Significant Control ("PSC") regime for UK companies.
Once an entity has been successfully added to the ROE, Companies House will issue an OEID which is required for the overseas entity to make Land Registry applications relating to the relevant property.
Failure to comply with the ROE filing obligations is a criminal offence which could expose the overseas entity and its officers to fines or imprisonment. Additionally, the Land Registry will be required to impose restrictions on title preventing registration of any transfer, grant of a lease or grant of a charge over the UK property (“Qualifying Disposals”) without registration on the ROE. Entering into a Qualifying Disposal in breach of the restriction is also a criminal offence.
Requirement for Independent Verification
Importantly, the recently published Register of Overseas Entities (Verification and Provision of Information) Regulations 2022 (“Verification Regulations”) require that, before an overseas entity registers its beneficial owners or managing officers on the ROE, the specified information required to be provided is first verified by a UK-supervised “relevant person”, being a UK-based agent supervised under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (which includes independent legal professionals, financial institutions, estate agents or trusts and company service providers (“supervised agents”)). An overseas entity will not be able to self-verify the specified information, so this will have a timing consequence for ongoing property transactions. Supervised agents will need to provide an agent assurance code (the equivalent of a signature) and an overseas entity verification checks statement to Companies House to confirm that the appropriate verification procedure has been followed.
Qualifying Disposals Since 28 February 2022
The Act also requires overseas entities to notify Companies House of any Qualifying Disposal that it has made between 28 February 2022 and 31 January 2023 (inclusive). Whilst the Overseas Entity is not required to join the ROE in this scenario (assuming it doesn’t own any other UK property), it does have to provide certain information on its beneficial ownership (which is largely the same as currently required to register on the ROE) by 1 February 2023.
Overseas entities with a current or imminent UK property acquisition will need to take immediate action (including engaging supervised agents to undertake the verification procedures) if the acquisition will complete (or the Land registry application will be submitted) on or after 5 September 2022.
Overseas entities that already hold UK property or have disposed of it since 28 February 2022, do not need to take urgent action and may wish to wait until more guidance and information become available over the next few weeks. However, they will need to apply for registration ahead of the 31 January 2023 deadline and so they should start taking steps to identify all their overseas entities caught by the new rules and start compiling the information necessary to register.
UK counterparties opposite overseas entities (eg sellers with an overseas buyer, landlords with an overseas tenant or lenders with an overseas borrower) will need to add suitable provisions to transaction documents (e.g. SPAs, leases and facility agreements) to require any overseas entity to apply to be added to the ROE (and to maintain its registration in the ROE at least until the relevant registrations at Land Registry have been completed) and to provide its OEID to the other parties prior to completion. Diligencing compliance with the new registration requirements will also be required in the acquisition of any overseas entity holding UK property.
The Goodwin Real Estate Industry team are here to help guide you through your ROE compliance obligations. Please speak with any of your usual Goodwin contacts for more information.