The Economic Crime (Transparency and Enforcement) Act (the Act) received Royal Assent on 15 March 2022. The Act provides for the setting up of the Companies House register for beneficial owners of overseas entities that own UK property. The Act forms part of the UK Government’s strategy to combat economic crime and to crack down on overseas criminals using UK property to launder money. Once the register has gone live, there will be implications for overseas entities that are, or are entitled to be, the proprietor of land registered at the Land Registries for England/Wales, Scotland or Northern Ireland, or for parties dealing with them.
Failure to comply with associated obligations under the new legislation will seriously impact on the overseas entity’s ability to sell, let or charge its land and it is a criminal offence for the entity and its officers at fault with fines and/or imprisonment. Overseas entities should consider their UK land ownerships or proposed acquisitions to understand the implications of the legislation for their organisations. The Act contains tighter timeframes in certain respects relating to real estate compared to the original published Bill.
Act gains Royal Assent
CMS commented in a previous Law-Now on the detail of the real estate implications of the Economic Crime (Transparency and Enforcement) Bill. Parliament subsequently made some changes to the Bill prior to gaining Royal Assent and this Law-Now highlights the key changes from a real estate perspective.
The Act provides for the creation of a new register of overseas entities at Companies House. Its primary objective, through the greater transparency created by the register, is to prevent the use of UK land by overseas entities to launder money or invest illicit funds. This register will for the most part be available to the public and as well as applying prospectively, will also apply retrospectively to property bought by overseas owners up to over 20 years ago in England and Wales and since December 2014 in Scotland.
The Act applies to an “overseas entity”, which is defined in the Act as a body corporate, partnership or other entity that is a legal person governed by the law of a country or territory outside the United Kingdom. This would include for example a Jersey or Guernsey entity. The legislation does not affect overseas individuals owning UK property directly or through a UK entity. Most of the Act is not yet in force and further timings are awaited.
Key real estate changes
From a real estate perspective, the key changes in the Act from the original published Bill are:
The timing has changed for HM Land Registry to enter a restriction on the relevant title of the overseas entity (see paragraph (ii) “Restriction on disposal” from the previous Law-Now). HM Land Registry, where applicable, must enter the restriction as soon as reasonably practicable and before the end of a new transitional period. The transitional period is 6 months from the date that the section of the Act relating to Companies House’s register of overseas entities comes fully into force. Although the restriction will appear on the title, it does not take effect until the end of the transitional period. This is a tighter timeframe than under the original Bill.
There is another tightening of the timing in the Transitional provisions mentioned at paragraph (v) of the previous Law-Now. The overseas entity has until the end of the transitional period mentioned above to become a “registered overseas entity” at Companies House (having complied with the registration and updating obligations at Companies House or there is a pending application for registration). So it is a 6 months’ period rather than the 18 months specified in the original Bill.
There are new transitional provisions in the Act at sections 41-43 in terms of the overseas entity’s application to Companies House to be entered on the overseas entities register and the information that needs to be provided in that regard about land transactions entered into from 28 February 2022. The provisions also include an offence for the entity and officers of the entity if the entity has made a relevant disposition of land (i.e. transfer, grant of a lease for more than 7 years or grant of a legal charge, with certain exceptions) in the period from 28 February 2022 until the end of the transitional period mentioned above, but by the end of that transitional period the entity is not registered as an overseas entity (and there is no pending application for registration) nor is exempt and has not delivered certain information to Companies House. This provision seeks to capture an overseas entity which disposes of its UK land during the transitional period and would otherwise avoid disclosure of relevant information to Companies House. The offence is punishable by a fine.
All of the new timings relate to a period starting from the date that the section of the Act relating to Companies House’s register of overseas entities comes fully into force. It remains to be seen how long that will take and perhaps in that regard how well-progressed Companies House is with the new register.