As we reported in a previous Transparency update, in April 2017 the UK Government issued a "call for evidence" on its proposed register of overseas companies owning UK property. The Government has now published a response document, setting out how it plans to implement the register and outlining how its policy proposals have developed since April last year.
As the Government notes, the register will be "the first of its kind in the world" and builds on a series of corporate transparency measures, including the existing requirement for UK companies and certain other entities to maintain a register of "people with significant control" (PSCs). We reported in June 2017 on the most recent updates to the PSC register regime, with which the new overseas entity regime will be aligned. The establishment of the new register for overseas entities will represent a significant step in the continuing drive towards increased transparency.
The new regime will have a wide scope
In line with the feedback it received from respondents to the call for evidence, the Government intends that all legal forms that can hold properties will be within the scope of the new regime's requirements. It is noted, however, that the regime will need some flexibility, and exemptions for certain types of entity will be available where appropriate - for example to reduce the burden where there is already transparency of beneficial ownership information.
The requirements will apply in respect of all registrable leaseholds
The Government's original proposal was that the requirements would cover freehold property and leaseholds where the term is over 21 years. Many respondents did not support the 21-year definition of leasehold and, having reconsidered the issue, the Government now intends that the requirements will apply to freeholds and leaseholds that require registration, whatever their duration.
New proposals for compliance period and frequency of updates to the register
The Government previously declared its intention that the new regime's requirements would apply both to overseas companies owning or buying UK property for the first time and to overseas companies that already own UK property. It was envisaged at the time of the call for evidence that overseas companies already owning UK property would have one year to comply with the new requirements, but the Government has now come to the view that it is appropriate for overseas entities to have a longer period of time to comply and will consider the extent to which one year should be extended.
The information kept on the register will need to be updated periodically. The Government's original proposal was a requirement to update every two years. Some respondents suggested event-driven updates instead; the Government does not agree with this approach but is considering increasing the frequency of the update requirement.
Definition of "beneficial owner" to track the existing regime for UK companies
The vast majority of respondents to the call for evidence agreed with the Government's proposal to align the definition of beneficial owner for the purposes of the overseas regime with the definition of PSC under the existing regime for UK companies. This is on the basis that the PSC approach is based on international best practice and should avoid mismatches with information on UK companies and "prevent manipulation of holding structures".
Beneficial interests will still pass in the event that an overseas entity fails to participate in the new register
Where an overseas entity wishes to buy UK property, it is proposed that the entity will be able to apply to Companies House to participate in the new register and, if successful, it will be given a registration number. Then, when the entity applies to register itself as the legal owner of a property, the land registry application form will require the entity to give its registration number. The call for evidence had asked whether the beneficial interest in the property should be prevented from transferring where the entity does not have a valid registration number, as a means of ensuring compliance. The Government has now come to the view that this would not be workable within the broader framework of land law and could have damaging consequences for innocent third parties. It is therefore intended that the beneficial interest but not legal title will be allowed to pass to an overseas entity that does not have a valid registration number at completion or settlement.
The Government had in its call for evidence proposed allowing individuals who qualify as registrable beneficial owners of an entity subject to the regime to apply for their information to be suppressed in certain circumstances. These include where the individual is at risk of violence or intimidation due to the activities of the entity, or the way that the property held by the entity is used. Based on feedback to the call for evidence, the Government is considering options to protect further the residential addresses of named individuals on the register.
The Government intends to introduce restrictions on the title register at the land registry for companies that have not complied with the regime, which would prevent a disposal of the property. It is also proposed that non-compliance would be a criminal offence.
It is not clear from the Government's response if there will be protection for existing lenders where such a restriction is imposed. However, the response does state that pre-existing contractual rights (such as an option to buy land), statutory rights and the rights of insolvency practitioners will be protected, so hopefully this will extend to existing lenders as well.
The majority of the Government's proposals for the new regime remain rather vague. Legislation will be drafted to create the register: the Government intends to publish a draft Bill for scrutiny this summer and intends for the register to be operational in 2021.