The Register of Overseas Entities (ROE), brought into effect by the Economic Crime (Transparency and Enforcement) Act 2022 (2022 Act), has been up and running for some time now, since 1 August 2022 (see our blog and FAQs). The transitional period for registration by existing overseas entities which own or have long leases of UK property ended on 31 January 2023. Media reports and analyses of the ROE suggest that at least 19000 out of a total of 32440 overseas entities have not yet registered, meaning that those overseas entities cannot dispose of or grant security over that UK property.
In this article, we look at the consequences of failure to register in the ROE and what you need to consider if you are dealing with overseas entities that are acquiring UK property or that own or have long leases of UK property acquired after 8 December 2014 in Scotland or 1 January 1999 in England and Wales.
New overseas entity owners of UK property
Overseas entities (OEs) that intend to acquire property, or a long lease of property, in the UK need to register in the ROE before they can submit a land registration application.
If you are a lender taking security over that property, it will be key to ensure as a condition precedent to the release of funds that the OE does so as soon as possible and is able to provide all the necessary information, and have it verified, to be registered in the ROE . Lenders should also consider whether existing compliance with laws and authorisation undertakings in the proposed loan documentation sufficiently cover the OE's obligations under the 2022 Act.
Dealing with overseas entities in property transactions – Scotland vs England differences
Whilst restrictions appear in the titles of OEs in the Land Registry in England and Wales, no restrictions appear in the titles of OEs in the Land Register of Scotland. However, the Keeper of the Registers of Scotland will block an application for land registration if an OE has not first registered, or not updated its entry, in the ROE. OEs that hold Scottish property should also consider whether they must register in the Register of Persons Holding a Controlled Interest in Land (RCI). If so, registration in the RCI is required in addition to registration in the ROE, to disclose the persons controlling the OE and the major decisions relating to the Scottish property.
Fines and penalties
OEs which should have registered in the ROE by 31 January 2023 but have failed to do so are in breach of the 2022 Act and could have fines levied against them and their managing officers. Companies House has said, in a recent press release, that it is preparing enforcement cases against non-compliant OEs.
Points to watch in transactions involving overseas entities
It is key to identify at an early stage of a transaction:
- whether there is UK property involved which is held by, or proposed to be held by, an OE;
- if so, whether that OE requires to register in the ROE;
- if so, whether that OE is registered in the ROE; and,
- if so, whether the registered OE has complied fully with its updating obligations under the 2022 Act.
Parties doing diligence in an M&A or investment transaction should make sure they ask these questions, particularly where the UK property will be disposed of by the OE or will be used as security for any funding obtained by the buyer or investor.
What to do if the OE is in breach
If the OE is not yet registered in the ROE but should be, the ROE application process should be started as soon as possible, as the process of gathering information and verifying the OE and its beneficial owners, if any, may be time consuming.
Non-compliant OEs will not be able to give warranties stating they are complying with all laws and regulations and should disclose the fact that they have not registered in the ROE and/or are not complying with their updating obligations. Also, they cannot deliver a deed transferring title or granting security if they have not complied with their ROE duties.
Parties contracting with OEs in this situation should require immediate registration in the ROE. If the OE has registered but is in breach of the 2022 Act, for example because it has failed to complete its annual updating obligations, then the other party should require the breach to be remedied and evidence of this. In both cases, the party contracting with an OE should refuse to complete the transaction before the registration in the ROE is completed and any non-compliance remedied.
The key takeaway is that where a transaction involves an OE which is acquiring or already owns or has a long lease of UK property, information on that OE's ROE registration and current compliance with the 2022 Act must be obtained as soon as possible. Where the OE is in breach, remedial steps must be taken to avoid penalties and the blocking of any dispositions of, or charges over, that UK property.
If you would like more information on this, please contact your usual Brodies contact or one of the authors of this article.