As readers are aware, the Economic Crime (Transparency and Enforcement) Act 2022 (“Act“) brought into being the Register of Overseas Entities (“Register“). The provisions relating to the Register came into force in stages in August and September 2022 and the transitional period for initial registration ended on 31 January 2023.
The position now is that any overseas entity which is the registered proprietor of UK property acquired on or after 1 January 1999 must now be on the Register or have made an application to be on the Register prior to the end of the transitional period. Such an entity, and all its responsible officers, will have committed an offence under the Act if it has not. Furthermore, where an overseas entity disposed of all of its UK property prior to the end of the transitional period, but after 28 February 2022, there is an obligation to have made certain disclosures to Companies House. A failure to disclose constitutes an offence under the Act.
Some commentators have asserted that as many as 40% of the overseas entities which ought to have applied to be on the Register have failed to do so. It would seem that the prosecuting authorities are going to be busy!
We have concerns that the speed (or lack of) with which the Land Registry deals with applications to register property transactions may mean, on a strict interpretation of the Act, that offences will have been committed inadvertently. By way of example, a property may have been disposed of before 28 February 2022 but registration at the Land Registry remains pending. This means that there is a risk that an overseas entity will still have been the registered proprietor of property on 1 February 2023 (after the end of the transitional period) and will neither be, nor will have applied to be, on the Register. This is an offence. Similarly, an overseas entity which is not on the Register and has not applied to be on the Register, will also technically have committed an offence if it has sold a property but is still the registered proprietor on 1 February 2023 even if it has complied with its disclosure obligations under the Act. Paradoxically, once the Land Registry completes the registration of the disposal, that registration is backdated to the date the application was sent to the Land Registry with the result that the offence disappears. It is to be hoped that the prosecuting authorities take a sensible and pragmatic approach to such issues.
Going forward, it is important to remember:
- If an overseas entity acquires registered land or a lease for a term of seven years or more, it must be on the Register at the date of the application for registration at the Land Registry. The Land Registry will reject any application which is not in compliance.
- If an overseas entity owning registered land enters into a transfer/lease/charge, it must have a valid registration on the Register at the date of the disposition, failing which the disposition cannot be registered at the Land Registry.
The difference between these two situations is that the first can be cured by getting the overseas entity on the Register and then applying for registration at the Land Registry (although there are other risks). The second situation cannot be cured other than by effectively repeating the failed disposition after the overseas entity is on the Register.
And it is not over yet
The Government has introduced a further Economic Crime and Corporate Transparency Bill which, among other things, will introduce verification procedures for all new and existing directors and persons with significant control. We will keep our readers informed as things progress.
- If an overseas entity is to acquire a new interest in property at the Land Registry, it must be on the Register at the date of the application for registration at the Land Registry.
- If an overseas entity wants to deal with a property that is (or should be) registered at the Land Registry, it must be on the Register at the date of the disposition. This is a once and for all opportunity for compliance.