Episode 6: What do I do if...I need to register controlling interest?

00:00:05 David Lee, Host

Hello and welcome to Podcasts by Brodies my name is David Lee, and in this series we take an in depth look at some common and not so common questions and scenarios Brodies lawyers have faced over the years. In each episode we talk to Brodies experts to hear their insights and experiences and how they find the right approach when they're asked the deceptively simple question, “what do I do if?”

I'm joined for this episode by two Brodies experts; Alex Buchan is a partner in the rural business team in real estate, and Catherine Reilly is Director of Knowledge in real estate.

And we're asking the question, "what do I do if I need to register a controlled interest in land?"

Welcome Alex and Catherine.

So Alex first of all, can you tell us what is the purpose of the register of persons holding a controlled interest in land and when did it come into effect?

00:01:00 Alex Buchan, Partner, Brodies LLP

Yes, thank you, David.

I think the keyword here is transparency. The register is aiming to improve transparency around who controls and also who makes decisions with regard to property in Scotland and and it's worth stressing that that this relates to all types of property. It doesn't solely relate to rural property, it also relates to commercial real estate and ownership and tenancy of those properties as well.

At the moment the registers of Scotland have two principal property registers, the sasines register, which is the old register of deeds and the Land Register of Scotland, which is the more modern register which is map based and makes it easier to see who owns land and the extent of that land.

However, the issue that's been identified around transparency is that in many cases the name that appears on the title deeds - or in the case of leases that are over 20 years in length, the name of the tenant - may not in fact be the party who holds the controlling interest behind the individual or the entity that appears on those registers, and this is this is particularly true with regard to, for example, trusts and partnerships and entities of that type.

So this is a move really to increase transparency, which is in line with the Scottish Government move to get all land registered, and this is a further step, if you like in in that direction.

This came into effect on the 1st of April of this year, 1^st of April 2022, but the actual requirement to register there's if you like a stay of execution until 31st of March, 2023, by which time all relevant individuals and entities that this applies to which we'll hear about a bit more later, should have registered.

00:03:21 David Lee, Host

OK, well thanks very much Alex.

And I mean simply, what is a controlled interest in land?

00:03:26 Alex Buchan, Partner, Brodies LLP

That's the key question and the question that the people that this affects will have to turn their minds to.

In effect, it's where there are persons or entities who are sitting behind the party who holds on the face of it, the title as owner or the lease as tenant in the current registers in the Registers of Scotland.

Now in the regulations, these parties are described as associates, and as I say, they don't appear on the face of the title deeds or the long lease in question, but these parties exercise - or have the right to exercise - influence or control over those persons or entities who do appear on the registers.

I suppose in most simple term they could be said to be pulling the strings, if you like in the background, perhaps not solely - there may be other people or there may be people on the face of the documents that are also involved - but they also have significant influence or control over the property in question.

Now when we talk about significant influence or control:

• Influence means having the ability really to ensure that the owner or tenant of the property (the person that that is the front facing owner or tenant of the property) adopts the approach that the associate wants with regard to the property.
• Control, means the ability to direct the activities of that owner or tenant in relation to the property.

Now, measuring the extent of that influence or control is going to depend on the circumstances and you know each case will have to be looked at.

00:05:49 David Lee, Host

OK, and Catherine to bring you in here and this is obviously quite a complex area.

How does somebody know if the register affects them?

00:05:59 Catherine Reilly, Director of Knowledge & Innovation (Real Estate), Brodies LLP

Yes, thank you David.

It's not straightforward, but the first question someone should ask is, are they actually a person or entity affected by the regulations? Because not everyone is.

So you either have to be an individual, trust, a partnership, an unincorporated body or an overseas entity. And then the next question is do they own or lease, i.e., take a long lease of property over in Scotland and that long lease has to be for over 20 years for it to have been registered in the property Registers of Scotland.

And then you have to ask - just as Alex was mentioning - whether or not there's anyone else behind who is on the title or on the lease at the Registers of Scotland, who actually influences or controls the major decisions relating to that property. And that can be, for example, if a trust owns property and not all of the trustees appear on the title. That's a situation where there's influence or control, which has to be submitted to the Register of Persons Holding a Controlled Interest in Land (RCI) as an application to submit their permission and disclose their associates.

00:07:12 David Lee, Host

And Catherine, is everybody who owns or has a long lease over property in Scotland affected by the new register?

00:07:20 Catherine Reilly, Director of Knowledge & Innovation (Real Estate), Brodies LLP

No, it's not everyone, it's those persons and entities that I've already mentioned. But that doesn't include, for example, UK companies, limited liability partnerships, Scottish limited partnerships or registered charities so Scottish Charitable Incorporated Organisations or SCIOs. Because they're already subject to transparency regimes, and they don't have to comply with the RCI duty to submit more information because that would end up with dual reporting. So if they own the property or they have a long lease over the property they don't have to submit information to the RCI.

00:07:57 David Lee, Host

OK, and what triggers a requirement to submit information to the register Catherine?

00:08:05 Catherine Reilly, Director of Knowledge & Innovation (Real Estate), Brodies LLP

So at the moment, with the new regulations coming into force, anyone who is affected by the regulations, so your individual trusts, partnerships, overseas entities, unincorporated bodies, they have to look at their titles and decide whether or not they have an associates, they have someone who has the controlled interest in the land and then they will have to make a submission to the RCI.

If that is the case, those people who are affected, if they then change their arrangements and they acquire an associate who then has a controlled interest in land. So for example, a trust takes on a new trust, assumes a new trustee, and that new trustee doesn't appear on the title that will trigger an RCI submission requirement.

Also, going forward, everyone who is affected if they acquired a property and their title or their lease is not clear as to who's controlling the major decisions in land and those that control is as defined in the RCI, they will have to make an RCI submission as well as register their title at Registers of Scotland.

00:09:14 David Lee, Host

OK, so what does somebody need to consider, Catherine, before they do make an application?

What are the main considerations before moving forward?

00:09:25 Catherine Reilly, Director of Knowledge & Innovation (Real Estate), Brodies LLP

What they will have to consider is looking at the type of information that they will need to be submitting to the RCI.

So if they do have an associate, they will need the associates contact address, if it's a registered number. They'll need the associates date of birth, although that will not be published fully. So they will need to consider all the information they need to collect and they will need to verify that information with that associate. The associate has to say it's correct before they can then submit it to the RCI and they'll have to take all reasonable steps to verify that.

They will then have to consider that there are time limits to submit that RCI application. Now at the moment, as Alex mentioned, there's a stay of execution if you like until 1st of April next year. However, going forward after that date within 60 days of acquiring an associate who has a controlled interest in the land you will have to make that submission to the RCI so time limits will have to be thought about.

00:10:25 David Lee, Host

OK, I'm coming back to you Alex.

How do you go about submitting your information? What's the process?

00:10:33 Alex Buchan, Partner, Brodies LLP

Well, the process is as Catherine mentioned there the in gathering of the information relating to the owner or the tenant of the property, as the case may be. The identity and description of the property in question and then importantly the details surrounding the associate, which is what the register is looking to unearth if you like and to have on a form of public record.

The application should be submitted online to the Registers of Scotland’s Register of Controlled Interests and there's a web page set-up for that purpose and also guidance and one thing and another to assist with that. And that application can be made by the owner, or in the case of a leaseholder, the tenant or it can be made on behalf of either of those parties by an agent, so solicitor, for example.

00:11:45 David Lee, Host

OK, and you've talked a bit already about what information is required Alex.

Can any information be withheld and which? How many personal details must go onto the register and is it a public document?

00:11:53 Alex Buchan, Partner, Brodies LLP

Yes, it is a it is a public document or a public register and it will be capable of being searched by the general public to find out information. Now there's no general exemption for privacy or confidentiality, and I, I suppose when you look at it, it's self-evident why. Because the whole purpose is to have much fuller disclosure of associates and these parties. So you know their existence if they could cite confidentiality or privacy for not having their details on the register, would be self-defeating to a large extent.

However there is a process whereby the if the disclosure of the details would put that associate at serious risk or threat of violence or abuse, or intimidation, then they can seek or apply for a security declaration from the Registers of Scotland, which means that their information or information about them will not be disclosed.

Now I'm not clear as yet exactly in what situations that or circumstances that might arise - we've not - I've not come across it yet. I don't know if Catherine had any experience of that. But the way that would operate is that when the information is submitted to the Registers of Scotland, there's a sort of 30 day period before the information submitted goes live and the security declaration would be submitted at that time in advance of it going onto the register for consideration by Registers of Scotland as to whether it should or should not be disclosed, and there is an appeal procedure in the event of them deciding to publicise information that is considered to fall within that category.

00:14:05 Catherine Reilly, Director of Knowledge & Innovation (Real Estate), Brodies LLP

Yes, one of the examples that's been given, of someone who may come to harm is someone who may suffer from domestic abuse if their details become public, so they may well want to submit a security declaration to make sure that their details don't become public.

00:14:23 David Lee, Host

OK, is it too early Catherine to know how many exemptions might be requested?

Are we too early into the process to really see you know more examples emerging just yet?

00:14:36 Catherine Reilly, Director of Knowledge & Innovation (Real Estate), Brodies LLP

Yes, we are very early in the process. I believe with the grace period of up to 31st of March with penalties kicking in on the 1st of April next year, people are not rushing to register.

There's also a bit of work to be done in publicising the register and making sure people know about their duties to register. So we've still to see how security declarations will actually work in practice and how often they will be used.

00:15:04 David Lee, Host

OK, and when it comes to putting the details onto the register Catherine, are there any charges to do that?

00:15:12 Catherine Reilly, Director of Knowledge & Innovation (Real Estate), Brodies LLP

No, there's no cost to submit your application to the Registers of Controlled Interests, and there's no cost to search the register, but just to watch of course, as Alex mentioned, there's a 30 day delay on all applications appearing.

However when it comes to cost, if you are going to employ a solicitor and instruct a solicitor to help you with your submission, they will charge you for helping you to do that and in some cases you will need assistance. People will need assistance.

We've mentioned the definition of control, the definition of an associate for the register. In some cases it will be very difficult to track down who that might be.

So it can come round to shareholdings that can come down to missing people from titles and identifying who's actually on the title before deciding whether you have an associate. So there may be charges from your solicitor in establishing that kind of information and then doing the submission on your behalf.

00:16:14 David Lee, Host

OK, and we touched a little bit there on kind of public information - how well known is the register at the moment? It's something that you're working on and you've probably been living and breathing it for some time, but how well understood is it across people who do own land and property?

00:16:32 Catherine Reilly, Director of Knowledge & Innovation (Real Estate), Brodies LLP

I'd say it's difficult to gauge at the moment and I wouldn't say that it's very well known. It will be well known by those who deal with property on a regular basis and are reading the property press, but for others who only occasionally deal with their property and actually are actually affected, I don't believe it is well known at the moment there hasn't been any huge big publicity campaign. I'm not sure how Alex feels about the clients he's come across in terms of knowledge.

00:17:02 Alex Buchan, Partner, Brodies LLP

We've been trying to get the message out there to our clients that this needs to be done and in the circumstances when it's required. And I think it's perhaps viewed as another piece of administration, perhaps that needs to be completed.

But I think in in the vast majority of cases, there's not any particular issue with providing this information. I mean, it's maybe just worth stressing that you know a lot of trusts and partnerships and one thing another are generally - they are for good business or other reasons and not to conceal who you know the associates are.

It's just perhaps, given the passage of time where trustees have changed and the title to property hasn't incorporated them into it, or we're in a partnership situation, say an individual owns the land, but it's farmed or otherwise used by a family farming partnership.

There's no intent to hide or bury that information, it's just that it's not been captured before in any form of register and that's what this is seeking to address.

00:18:30 David Lee, Host

OK, and Catherine, we've talked about this grace period that's going all the way through to 31st of March next year, but beyond that, what are the penalties? Are there penalties for failing to comply with the rules of the register? And do you think we are likely to see penalties imposed?

00:18:50 Catherine Reilly, Director of Knowledge & Innovation (Real Estate), Brodies LLP

There are indeed penalties.

It is a criminal offence not to submit the details you require to submit to the RCI and it's a criminal offense not to comply with the duties like updating or verifying details. The penalty can be a fine of up to £5000, so it's not insignificant. Whether penalties will be imposed, time will tell.

It will seem a bit harsh for some people who may not be aware of their duties, and we'll have to wait and see if penalties are imposed and who they're imposed upon. And so we can't say for the moment.

00:19:33 David Lee, Host

OK, so Alex just to wrap up and if anyone thinks they might need to register a controlled interest in land, just summarize again, where should they start and what's your overall advice to them.

00:19:50 Alex Buchan, Partner, Brodies LLP

I mean, I think I think the best place to start is probably to look at the Registers of Scotland website which gives good information on that and or indeed our Brodies website which gives very helpful information including some frequently asked questions and answers that helps steer you in in the right direction.

And I think you know you you first off have to identify as Catherine said, whether you are an individual or an entity that that falls within these regulations. And and if you are, then do you have to comply? I.e., is there an associate that requires you to make a return or a submission to the register?

In terms of in gathering the information and submitting it, that may be a relatively simple task. It may be quite easy to define what properties affected it may be quite easy to see that there is one owner, but there are now three partners in a partnership or whatever and that a submission should be made to the register.

But in other cases it may be really quite complex.

It might be complex in terms of identifying who the associate or perhaps the beneficial owner behind the title holder actually is and indeed the extent of the property that is affected or that it relates to. Particularly in situations where that property is not yet on the land register which is perhaps less common in an urban scenario, but still fairly common in a rural context that the property hasn't been registered in land register, so it's not been the subject of mapping by Registers of Scotland.

And I, I think the overall advice would be given the potential penalties that that could be incurred would be to act sooner rather than later. Come look at it, get in touch and speak to speak to someone who knows about this with a view to getting it sorted early and not falling foul of this as and when they start to enforce it.

00:22:25 David Lee, Host

OK, great stuff. Thank you very much Alex and thank you to Catherine, too, for your insights today.

Please listen out for other episodes of "What do I do if…?" which is brought to you by Podcasts by Brodies, where some of the country's leading lawyers and some special guests share their enlightened thinking about issues and developments in the legal sector and their impact on wider society and the economy.

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