I wrote last year about the new legislation: the Economic Crime (Transparency and Enforcement) Act 2022. This legislation, which came into force on 1 August 2022, obliged any entity which owns freehold or leasehold registered land in the UK to become a “registered overseas entity” on the new public register of overseas entities set up at and operated by Companies House. Becoming a registered overseas entity requires information to be given to Companies House about entity itself and its beneficial owners. The rationale behind the legislation, which was rushed through as a result of Russia’s invasion of Ukraine, was to crack down on the UK property market being a safe haven for illicit funds. The legislation set a deadline of 31 January 2023 for the entity to become registered as an overseas entity at Companies House. Given that the detail of the information required and how to provide it was not given in guidance until September 2022, and a relatively small number of businesses set themselves up as UK-regulated agents able to assist with the registration, it is perhaps not surprising that this deadline approached swiftly and not all companies managed to hit that deadline. Research in February showed that approximately a third of entities who hold almost 52,000 leasehold or freehold titles had not managed to get registered by the deadline (or shortly after) or had given ownership details which don’t fulfil the transparency aim.
What are the consequences that that deadline has now passed?
Bear in mind that the obligations are relevant both of investors in land and also for occupiers under leases that were granted for more than 7 years and are therefore registered leasehold interests. For the entity in question, the most obvious consequence is that failure to do so is a criminal offence under the legislation. Informal commentary from Companies House and the government department is that criminal action is unlikely to be brought immediately, particular if the entity can show it has taken some steps to get registered on the overseas entity register but is held up in a back log. We would therefore suggest taking steps to rectify the situation swiftly and contacting Companies House informing them of the steps that have been taken.
Beyond criminality, the practical consequence to an overseas entity of not being registered yet are that a restriction will have been entered on the title at the Land Registry preventing disposal of the title without the entity being registered on the overseas register. Again, bear in mind that for tenants looking to reduce their space this could have an impact, delaying any potential assignment or underletting to a third party. In a soft market, any delay such as this could jeopardise any potential downsize, and therefore mean that rents remain payable. For tenants looking to take extra space or renew leases, it is important not only to be registered themselves as the acquirer of land but also to ensure that their landlord is registered on the overseas entity register (if required to be) so that any new lease once granted can be registered.
The message therefore is: the deadline may have passed but it remains important to continue to take steps as soon as possible to get registered, both to avoid penalties and to be able to deal with land.
The provisions of the Act will need to be carefully considered in relation to all property transactions that involve OE’s [overseas entities] in future and some past transactions will also be affected.