Economic Crime (Transparency and Enforcement) Act 2022: Deadline Reminder 31 January 2023 is Fast Approaching!

In an attempt to make the ownership of UK property by an Overseas Entity (“OE”) more transparent, the Economic Crime (Transparency and Enforcement) Act 2022 (“the Act”), which received Royal Assent in March last year, introduced a Public Register (“Register”) which will detail the beneficial ownership of OE’s which own, or intend to own, property in the UK.

The New Legislation

The purpose of the Act is to prevent an entity/person concealing the proceeds of crime and wealth through the ownership of UK property. The Act requires visibility of the beneficial owners behind entities used to purchase UK property.

What is a “Qualifying Estate”

A qualifying estate is a freehold estate in land, or a leasehold estate in land for a term of more than seven years.

Who is a “Beneficial Owner”

Beneficial owners include individuals, governments and public authorities or other legal entities which meet one or more of the following conditions:

1. they hold, directly or indirectly, more than 25% of the shares in the OE;
2. they hold, directly or indirectly, more than 25% of the voting rights in the OE;
3. they have the right, directly or indirectly, to appoint/remove a majority of the board of directors of an OE;
4. they have the right to exercise, or actually exercises significant influence/control over the OE; or
5. they are trustees of a trust or members of a partnership, unincorporated association or other entity that fulfils one or more of the above conditions, or a person whom has the right to exercise or actually exercises, significant influence or control over the activities of that trust or entity.

Exemptions can apply for some individuals and legal entity beneficial owners, however exemptions do not apply to government or public authority beneficial owners.

In a bid to prevent an OE falling short of the registration requirements, if there is no identifiable beneficial owner, the OE must provide details of its managing officers to Companies House to satisfy the registration requirements.

The Registration Process

Step 1: The beneficial owners/managing officers are identified and the information/ID required by the Act must be provided.

Step 2: The information must be verified by a UK agent (see below for more detail).

Step 3: Once the information is verified, an online form must be submitted to Companies House, together with a £100 fee.

Step 4: Companies House will register the OE and provide the ALL important Overseas Entity ID (OE ID).

Step 5: The OE has a duty to update the Register annually.

Verification

The Register of Overseas Entities (Verification and Provision of Information) Regulations set out in detail the requirements and obligations of the verifying agent.

Only the following are permitted to verify information for the purposes of the Act:

1. Credit and financial institutions;
2. Independent legal professionals (but see guidance on in-house solicitors);
3. Estate agents and letting agents;
4. Auditors and insolvency practitioners;
5. External accountants and tax advisors; and
6. Trust or company service providers.

Companies House has now published a list of UK-regulated agents who can complete the required verification checks. Click here.

Land Registry

From 5 September 2022 the Land Registration Act 2002 (“LRA 2002”) is amended to incorporate the provisions of the Act. Ultimately, the Land Registry will be prevented from registering an OE as proprietor of a qualifying estate unless they have an OE ID (or are exempt or exceptions apply).

The Act requires an OE to comply, if the OE was registered as proprietor of a qualifying estate on or after:

1. 1 January 1999 for England and Wales;
2. 8 December 2014 for Scotland; and
3. 1 August 2022 for Northern Ireland.

Land Registry Restrictions

In order to ensure compliance with the Act, the LRA 2002 imposes an obligation on the Land Registry to enter restrictions on the property title register owned by an OE. The restrictions will prevent the OE dealing with their land, such as a sale or grant of a lease, unless they have obtained the necessary OE ID.

If the OE  has not kept up to its annual updating duty at Companies House, the OE ID will not satisfy the restriction entered onto the property title register and the OE will be prevented from selling or leasing their property.

Consequences of non-compliance

Failure to register or to demonstrate a pending application is an offence, and anyone found guilty of such offence may be liable to unlimited fines, imprisonment or both.

The offence can be committed by every officer of the legal entity in default, as well as the legal entity itself.

Recommendations

It is recommended, when acting in any property transaction which involves an overseas entity, to include the OE ID in the transaction documents along with the territory in which the OE is registered. If the ID has not yet been issued, it is advisable to include a clause in the contract/agreement that the OE ID will be provided when obtained.

How the legislation will work in practice is yet to be determined, but it is advisable for any OE which either owns UK property, has done since the dates mentioned above, or wishes to own UK property, makes the necessary application to Companies House ASAP.