We've previously reported more widely on the Register of Overseas Entities (the ROE) and who it impacts. The six-month transition period ended as of 31 January 2023, meaning that Land Registry restrictions are now in force, preventing the registration of transfers, leases of seven years or more, or charges, by overseas entities. In general, such transactions will now only be able to be processed by Land Registry if the overseas entity was registered on the ROE at Companies House at the time of the relevant disposition.
We outline here more about the ROE, the penalties for non-compliance and what overseas entities, lenders and buyers need to consider.
The ROE explained
The ROE was introduced by the Government in an effort to combat foreign criminals using property in the UK as a means of laundering money. The intention behind it was to establish increased transparency around property ownership.
Given the speed at which the Government advanced the legislation (the Economic Crime (Transparency and Enforcement) Act 2022) and its implementation, the Land Registry and Companies House have had to implement stringent deadlines and even reduce the initial transition period of 18 months, to only six months.
The information required by Companies House to satisfy the register requirements is similar to the information held by the People with Significant Control (PSC) Register. Whereas the PSC regime requires companies to maintain their own register and update it as soon as changes happen, overseas entities need to deliver their information to Companies House and update it only once every 12 months.
What are the penalties for non-compliance?
Failure to comply with the new regulations may amount to a criminal act, for which both the entity and its officers can be held responsible. Current guidance says fines could be up to £2,500 per day, or a prison sentence of up to five years. At the time of writing this article there are more than 10,000 overseas entities that still need to register on the ROE, and so this large number of outstanding registrations may influence how strictly the new regime is enforced.
However, dealing with a property in breach of the overseas entity title restriction is considered a criminal offence, with any completion monies being considered proceeds of crime. So even if penalties aren't enforced, there are still serious implications.
What do overseas entities that have already registered on the ROE need to do?
Post-registration, overseas entities should remember that failure to comply with their duty to annually update their information at Companies House (in line with the above) could result in similar sanctions.
Also, an overseas entity that has not kept its information up to date on the ROE will not be considered a "registered" overseas entity for the purposes of the Land Registry restriction. This means it will have the same limitations on its ability to dispose of its land as an overseas entity that has not registered at all.
For these reasons, we'd strongly recommend that overseas entities implement internal processes now to prepare for the annual updates.
What do overseas entities that are not registered on the ROE need to do?
If you are an overseas entity that owns land in the UK and are not yet registered on the ROE, you will be subject to both the criminal sanctions mentioned above and the inability to register land at the Land Registry. In view of this, the application needs to be resolved as soon as possible.
It should be noted that even overseas entities in the process of registering could be held accountable, as the current stance is that time to obtain the relevant information and go through the process should have been factored in. Overseas entities that have begun but not completed the registration process should therefore double their efforts to ensure that they can complete and submit their application to Companies House as soon as possible.
What do overseas entities looking to acquire UK land need to do?
It's advisable that overseas entities who haven't yet acquired UK property but are seeking to do so should familiarise themselves with the ROE requirements and register ahead of time. Overseas entities need to take care when preparing their application for registration, as providing Companies House with a document that is misleading, false or deceptive in a material particular or making a like statement, is a criminal offence.
Ensure you've factored in enough time to register. Upon first registration, your ROE application needs to be verified by a "relevant person" from a UK auditor or corporate service provider. In the lead up to the 31 January 2023 deadline, verifiers were reportedly becoming overwhelmed with applications and had even rejected new instructions. Once verified, the average turnaround time for Companies House to accept an application has been 48 hours. However Companies House reports that as many as a third of all applications are rejected first time around due to errors, and this should be factored into the timeframes.
For a more detailed breakdown on if you're affected and how to register, check out our previous article on overseas entities.
What do lenders and buyers of property from an overseas entity need to do?
If acquiring property from an overseas entity, it's best to ensure that they have fully complied with the ROE regime. If they are not registered, or if they have not complied with their annual updating duty detailed above, you will not be able to register your interest in the land and will therefore not have legal title.
In such situations, any lenders funding the acquisition would also not be able to register their interests at the Land Registry and are therefore unlikely to release funds for the purchase.
Have you disposed of land before the deadline?
If you are an overseas entity that has disposed of your UK land before 31 January 2023 but after 28 February 2022, you will still need to register details of any disposal involving a freehold or leasehold for a term of seven years or more, to Companies House. This is the case regardless of whether you still own any property in the UK or not.
If you are an overseas entity that has disposed of all of your UK land and filed it with the Land Registry prior to 28 February 2022, in most situations, you would not need to do anything else. If Land Registry or Companies House do contact you in this instance, please reach out to your legal advisor to discuss.
For more information on the overseas entities register and how it may affect your transactions, contact Michael Twining, Paul Lloyd, or Tonia Magda.