Update March 2023: The RCI grace period has been extended by one year. The grace period is now scheduled to expire on 31 March 2024 instead of 31 March 2023. Also, note that the UK Register of Overseas Entities became operational on 1 August 2022 – read our ROE article here.
The Scottish Government's new Register, aimed at improving transparency on who truly controls what happens to land across Scotland, becomes active on 1 April 2022. The existing Scottish property registers, the Land Register of Scotland and the older Sasines Register, contain the details of those who own property and tenants who have taken a long lease of property lasting more than 20 years. The new Register of Persons Holding a Controlled Interest in Land (RCI) will go one step further.
Where the owner or tenant noted in the Scottish property registers is not actually the person in control, the RCI will contain details of those who control and make decisions relating to the property. The controllers and decision makers will be known as associates. Owners and tenants with associates behind them making the decisions will have to disclose details of those associates to the RCI.
Who is affected?
Those whose titles or leases are not in the name of all the persons or entities who control what happens to the property will be under a duty to disclose information for the RCI. This duty only applies if the landowner and/or tenant is an individual or a partnership, trust, unincorporated body or overseas entity, or a person who owns or leases the property on behalf of any of these, including a partner of a partnership or trustee of a trust.
So, for example, associates holding a controlling interest in properties could include general partners of a partnership and trustees of a trust, where they are not already named on the title.
Those with property in rural areas, such as farms and estates, are expected to be particularly impacted as these are commonly owned or tenanted by partnership and trust structures.
Who is not affected?
To avoid duplication of disclosures, owners and tenants who appear in the property registers and are already subject to other transparency regimes such as the Persons with Significant Control rules will not have to submit information to the RCI. Companies and Limited Liability Partnerships registered in the UK that hold title or the tenant's interest in a long lease are therefore excluded from the duty to disclose, as are public authorities subject to Freedom of Information requirements. So, for example, this will mean that property registered as being owned or leased by UK companies, LLPs and Scottish Limited Partnerships will not be subject to the RCI disclosure requirements.
Paid professional advisers such as lawyers or accountants of owners and tenants will not be treated as associates.
What is a controlled interest?
A controlled interest is where an associate, who does not appear on the title or lease, has the right to exercise, or actually exercises, significant influence or control over dealings with the property. It is the associate, rather than (or sometimes along with) the named owner or tenant who has the main say in any sale, leasing, mortgaging, granting heritable rights such as access over the property or changing its use.
The 'control' referred to is the ability to direct the activities of the owner or tenant. Having 'significant influence' will be seen as being able to ensure that the owner or tenant will typically adopt the approach that the associate would like taken. How control and influence are measured or ascertained will depend on the type of associate. So, for example, a person entitled to dictate how the funds of a trust that holds property are distributed or to appoint or remove trustees of that trust, could be seen to have significant influence and control, and be deemed to be an associate. Another example of significant influence and control would be someone who owned 25% of the voting rights of an overseas entity that owns property.
What information must be registered and when?
The associate's details, including the name, contact address and date of birth for an individual and the name, registered office address and any registered number for corporate bodies, will have to be submitted to the RCI. Dates of birth will not be made public and there are protections in place for those who may be placed in danger if their details were made public.
Each owner or tenant with an associate will have to submit the associate's details to the RCI. Each associate will be allocated a unique reference number, and can be located on the RCI via that number.
Details must be provided to the RCI within 60 days of an owner or tenant's interest becoming subject to the control of an associate. Those who already own or lease property over which associates hold a controlling interest when the RCI opens on 1 April 2022 will not be committing an offence, provided they submit the required details to the RCI before the grace period expires on 31 March 2023.
What is the penalty for non-compliance?
If the registered owner or tenant fails to disclose the required information, or provides false or misleading information, they will be a guilty of a criminal offence and may incur a fine of up to £5,000. Associates also have a duty to provide the required information and to notify the owner or tenant if they are not aware that there is an associate, or have failed to register the associate. Non-compliance by associates is also a criminal offence. However, penalties will not be charged before the end of the grace period on 31 March 2023. This will allow time for owners, tenants and associates to comply with their RCI duties.
RCI and the Register of Overseas Entities
Finally, it's worth mentioning the introduction of another register seeking to improve transparency of ownership of land. The new Register of Overseas Entities, being introduced by the UK Government's Economic Crime (Transparency and Enforcement) Act 2022, will require overseas owners and tenants of land and property across the UK to declare who holds the beneficial interest in the entity registered as the owner or tenant in the property registers. In Scotland, this will affect land and property registered in the Land Register from 8 December 2014.
The RCI affects all land and property in Scotland regardless of when it was registered and currently demands that overseas entities submit details of any associates holding a controlling interest. There is therefore likely to be significant overlap with the Register of Overseas Entities. It is hoped that measures to avoid duplication of submissions will be introduced, reflecting the rules that exempt entities that are already subject to other transparency regimes (noted above under the Who is not affected? heading). However, further legislation will be needed to remove overseas entities from the RCI requirements and, even then, overseas trusts may have to continue declaring controlled interests to the RCI as they are not covered by the UK Register of Overseas Entities.
The date for the UK Register of Overseas Entities becoming operational has still be confirmed but the RCI will be up and running on 1 April 2022. As yet, there hasn't been a significant publicity campaign to advise affected property owners and tenants of their duties to submit information to either Register. That may happen over the course of the next year.
For those affected, legal advice should be sought to identify how the law will apply to their own specific circumstances.
Read our FAQs about the RCI here
Contributors
Director of Knowledge (Real Estate)
Practice Development Lawyer
