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Register of Overseas Entities

Register of Overseas Entities, Ian Quayle, CEO, IQ Legal Training 

Ian Quayle discusses key changes to the overseas entities and the economic crime (Transparency and Enforcement) act 2022. 

New Legislation 

This legislation introduced the Register of Overseas Entities as a response to the Russian invasion of Ukraine and is aimed at establishing a register of foreign beneficial owners of corporate entities that own UK property. The legislation came into force on 01 August 2022.  

Whilst a UK company has been under an obligation to disclose ownership since 2016 due to the creation of the People with Significant Control Register the purpose of which was to ensure that it should not be possible to disguise ownership of property. 

Despite the creation of the Register a company owning UK property is not under any obligation to disclose who owns or controls the company. Corporate ownership permits the disguise of ownership for legitimate reasons such as confidentiality but also generates an opportunity for disguise enabling illegitimate and illegal use such as hiding criminal activity such as money laundering.  

The requirement for registration of Overseas Entities is aimed at addressing the problem arising from the fact that a number of foreign countries do not have an equivalent register. The purpose of the register is that an overseas entity buying UK property will need to register its beneficial owners. 

What is an overseas entity? 

Section 2 of the Economic Crime (Transparency and Enforcement) Act 2022 states that “overseas entity” means a legal entity that is governed by the law of a country or territory outside the UK and “legal entity” means a body corporate, partnership or other entity that (in each case) is a legal person under the law by which it is governed. 

Put simply the Act requires overseas entities that own UK property or are intending to acquire property in the UK to register with Companies House, unless they are exempt, to provide information about their beneficial owners or managing officers and to update this information annually.  

There are some key dates to be aware of: 

  • Overseas entities that already hold one or more qualifying estate(s) will have six months from 1 August 2022 to file information on themselves and their beneficial owners and (in some cases) their managing officers and any trusts above the level of the overseas entity 
  • The new Schedule 4A becomes law on the 5 September 2022, allowing some time for overseas entities to apply for an Overseas Entity ID. 
  • This process must be completed on or before 31 January 2023, and there are criminal consequences for non-compliance.  
  • Where the overseas entity already owns property in the UK, and it acquired that property after 1 January 1999 in England and Wales, after 8 December 2014 in Scotland, or after 5 September 2022 in Northern Ireland, it must submit their application to register before 1 February 2023.  
  • The overseas entity cannot transact with its UK property on or after 1 February 2023 until it is registered. 

 

The new Register of Overseas Entities will be a public register administered by Companies House. Put simply any beneficial owner with a shareholding of more than 25% of the shares in an overseas entity need to be registered. 

The consequences of a failure to register are as follows:  

  • Schedule 4A LRA 2002 prevents HM Land Registry from registering an overseas entity as proprietor of a ‘qualifying estate’ unless the overseas entity has first obtained an OE ID. 
  • It follows that an overseas entity will need an OE ID before a disposition is made. 
  • An overseas entity that will need an OE ID in order to apply for registration at HM Land Registry or to make a disposition on or soon after 5 September 2022 needs to act promptly. The 5-week delay between the creation of the Register of Overseas Entities and the commencement of Schedule 4A LRA 2002 should provide sufficient time to obtain the required OE ID. 
  • On a practical level be aware that the Land Registry has amended a number of their prescribed forms and an amendment has been made to prescribed clause LR3 of a prescribed clauses lease.  

The requirement to register applies to overseas entities that own or are acquiring a qualifying estate. Both the 2022 Act and Schedule 4A to LRA 2002 define a qualifying estate as a freehold estate in land, or a leasehold estate in land granted for a term of more than seven years from the date of the grant. 

Given the radical change required to conveyancing practice for relevant transactions the 2022 Act provides a transitional period beginning on 1 August 2022 and terminating on 31 January 2023 during which overseas entities can dispose of their property without having to register with Companies House. 

Section 42 of the 2022 Act provides for details of the disposition and beneficial ownership of the overseas entity to be given to Companies House. 

  • Where an application is made to register an overseas entity between 1 August 2022 and 4 September 2022 it is not necessary to provide an OE ID, but a restriction will be added to the title of the overseas entity on or after 5 September 2022. 

Section 42 of the 2022 Act provides for details of the disposition and beneficial ownership of the overseas entity to be given to Companies House. 

The reason for the restriction arises from Schedule 4A places an obligation on the Registrar to enter a restriction where an overseas entity is registered as proprietor on or after 1 August 2022. The restriction will take effect immediately from when it is entered. If the overseas entity has obtained an OE ID during this period it should be included with any application made. 

A duty is placed on HM Land Registry due to Paragraph 6 of Schedule 3 to the 2022 Act which compels the Land Registry to enter a restriction in the register of a qualifying estate if the registrar is satisfied that an overseas entity is registered as proprietor of the estate and became registered as the proprietor in pursuance of an application made on or after 01 January 1999. 

After 31 January 2023 no disposition as defined by the Land Registration Act 2002 is to be completed by registration unless one of the 

provisions in paragraph 3(2)(a)-(f) of Schedule 4A to that Act applies. 

The wording reflects the transitional period during which an overseas entity can dispose of their property without having to register with Companies House. The restriction takes effect after the end of the transitional period on 31 January 2023 although section 42 of the 2022 Act provides for details of the disposition and beneficial ownership of the overseas entity to be given to Companies House. 

The restriction that conveyancers will encounter in the future entered in registers under paragraph 3 of Schedule 4A to the LRA 2002 applies for all overseas entities applying to be registered as proprietor on or after 1 August 2022 and states; 

No disposition within section 27(2)(a), (b)(i) or (f) of the Land Registration Act 2002 is to be completed by registration unless one of the provisions in paragraph 3(2)(a)-(f) of Schedule 4A to that Act applies. 

Where the restriction is placed on a title evidence required to show compliance with the restriction is either a valid OE ID for the overseas entity making the disposition or a certificate OE1 by a conveyancer as set out specifying which of the exceptions in paragraph 3(2) of Schedule 4A to the LRA 2002 applies. 

The following types of applications and dispositions are caught by the 2022 legislation: 

  • Transfers of a qualifying estate to an overseas entity 
  • Transfers of a qualifying estate by an overseas entity 
  • Registrable leases for a term of more than seven years from the date of grant to an overseas entity, which are granted out of a qualifying estate. 
  • Registrable leases for a term of more than seven years from the date of grant by an overseas entity, which are granted out of a qualifying estate. 
  • Registrable charges by an overseas entity. 
  • Applications for first registration of a qualifying estate where the applicant is an overseas entity. 
  • Adverse possession applications to register an overseas entity as proprietor of a qualifying estate. 

Where an application is made a valid OE ID should be submitted or if an exception is being relied upon the permitted exception must be specified.  

Where an overseas entity has obtained an appropriate ID it will be entered in the proprietorship register. 

Although paragraph 2 of Schedule 4A refers to exempt overseas entities, no regulations have yet been made specifying exempt overseas entities (under section 34(6), 2022 Act). 

If an application is made to register a disposition of a qualifying estate by an overseas entity which became entitled to be registered as proprietor of that estate on or after 5 September 2022 (but was not so registered), the evidence needed to comply with the requirements of paragraph 4 of Schedule 4A to the LRA is either a valid OE ID for that overseas entity or a certificate OE2 by a conveyancer specifying which of the exceptions in paragraph 4(2) of Schedule 4A applies. The certificate is specified in Appendix 2 to Land Registry Practice Guide 78. 

If an application is made to register a disposition of a qualifying estate and the application includes a disposition made by an overseas entity which became entitled to be registered as proprietor of that estate on or after 5 September 2022 (but was not registered), the evidence needed to comply with the requirements of paragraph 4 of Schedule 4A to the LRA is either a valid OE ID for that overseas entity or a certificate OE2 by a conveyancer as previously described.  

Paragraphs 3(2) and 4(2) of Schedule 4A to LRA 2002 prevent registration of any disposition within section 27(2)(a), (b)(i) or (f), 

LRA 2002 unless one of the exceptions in paragraphs 3(2) or (4(2) applies. 

Where this is the case a conveyancer is then required to state if an OE ID is not being provided and is relying on one of the exceptions not required should be stated on the application and/or dispositionary form and provide either a certificate OE1 or OE2 (as applicable) from a conveyancer certifying which exception applies and the further information requested.  

No regulations have yet been made providing for exempt overseas entities. The 2022 Act provides that in most cases an ‘exempt overseas entity’ is not subject to the requirements set out above but at present no regulations have been made specifying which overseas entities are exempt. 

So, what should conveyancers be aware of? 

  • In any conveyancing transaction there is an obligation to identify the beneficial owner of any property being acquired.  
  • The ability to disguise ownership in connection with overseas entities generates an opportunity for criminal activity including money laundering. 
  • Verifying client identity is an issue not just when onboarding clients but throughout the conveyancing process.  
  • When obtaining instructions from corporate clients whether in a residential or commercial context the conveyancer acting should check the constitution of the company and to check  
  • that the individual instructing the conveyancer has the appropriate authority from the company to do so. 
  • When acting for a buyer or seller it is important to check if the corporate client should be registered that it is registered. The registration process is not necessarily a speedy process. 
  • Where an overseas entity has not been registered and requires the verification of beneficial owners it is important to understand that the verification process can be complex and slow. Remember it will then be necessary to register too. 

What does verification require? 

An overseas entity cannot apply to register on the Register of Overseas Entities unless a “relevant person” has verified the information to be delivered to Companies House and delivered a statement in the form set out in Regulation 6 of the Verification Regulations to Companies House confirming this has been done. A relevant person would include an independent legal advisor. 

Section 4 of the 2022 Act sets out the requirement for an overseas entity to make an application to Companies House and together with Schedule 1 of the 2022 Act specifies the information to be delivered and the obligation to verify registrable beneficial owners and (where applicable) managing officers and trusts above the level of the overseas entity.  

The verification process is contained in regulation 6 of the Verification Regulations and relates to relevant information as defined in regulation 5 of the Verification Regulations.  

From the perspective of compliance law firms must decide whether they are prepared to conduct ROE verification on a client-by-client basis or at all. For most specialist conveyancing firms the sensible advice seems that the risks associated with incorrect verification outweigh the work required to verify.  

Verification for ROE purposes is not the same as the risk-based approach that applies to CDD under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulation 2017 (as amended) (SI 2017/692) (the “MLRs”).  

Verification is a very different process from CDD. Members should exercise extreme caution. To be blunt I am of the view looking at the process required and the potential risks if an error is made that residential conveyancers should not be prepared to verify corporate clients or third parties.  

The Law Society has concluded that many firms will conclude that they are unable or unwilling to conduct ROE verification because they lack appropriately experienced and jurisdictionally competent advisers, knowledge of the structure and nature of ownership of corporate clients or third parties, and due to an absence of availability of reliable and independent information.  

An overseas entity will not be able to apply to register on the ROE unless a “relevant person” has verified the information to be delivered to Companies House and delivered a statement in the form set out in Regulation 6 of the Verification Regulations to Companies House confirming this has been done. For this purpose “relevant person” includes independent legal advisers. 

More information regarding changes to legislation can be found on the UK Government website here.