Register of Persons Holding a Controlled Interest in Land – one month to go!

Register of Controlled Interest in Land - the countdown is on!

Background

Section 40 – 42 of the Land Reform Scotland Act required the Scottish Ministers to implement a public register showing the true controlling interest in land ownership (which includes leases of over 20 years). Therefore, the Register of Persons Holding a Controlled Interest in Land (“the RCI”) was born. The regulations requiring the implementation of the RCI were unanimously passed by the Scottish Government in 2021 and the RCI goes live on 1 April 2022.

If it’s not broken then why fix it?

The rational behind the introduction of the RCI is simple – to improve transparency and clarity regarding the true ownership of land and property in Scotland. In some instances, it may be the case that the legal owner as shown on the title is not in fact the true “controller” of the land.

The RCI will allow anyone to “look behind” the registered owner of land to ascertain if another individual or company has the right to exercise, or actually exercises, significant influence or control over the registered owner’s dealings with the land. Dealings are defined as disponing, leasing, creating real rights over land or changing the use of land.

The RCI aims to bring a second layer of transparency, clarity and publicity to the Land Register and to avoid situations whereby the true controller of the land is shrouded e.g. by way of complex trustee and partnership structures.

“Recorded Person” and “Associate”

The RCI introduces two new key terms - “Recorded Person” and “Associate”, both of which will be identified in the RCI, to reflect the fact that the Recorded Person may not actually be the person able to exercise control over dealings with the land.

“Recorded Person” is the more straightforward definition – the Recorded Person is simply the individual or entity who owns or tenants the land under a long lease and has an Associate.

“Associate” is defined as an individual or entity who has significant influence or control over Recorded Person’s dealings with the land. To fully understand how the definition of Associate will operate in practice, the notion of “significant influence” also requires analysis.

What is significant influence?

Significant influence is defined in the Regulations as a situation whereby “a person is able to ensure that another person will typically adopt the approach that the first person desires”. A few examples of situations in which a person will exercise significant influence and therefore be an Associate are detailed below:

Trusts

If a company is a Trustee in a Trust Deed (but not a registered or recorded owner/tenant), they will be identified as an Associate. If an individual out-with the Trust Deed also exercises control over the appointment of the Trustees, this individual should also be identified as an Associate.

Partnership

If land is held on behalf of a partnership, all general partners of the partnership (who are not a registered or recorded owner/tenant) must be registered as Associates in the RCI. It should also be noted that an individual who is able to influence the decision-making of the partnership without holding a formal governance position within the partnership will also be considered an Associate. There is also an ongoing positive obligation to update the RCI if the partners change or are removed.

Overseas companies

Any party with over 25% of the voting rights in an overseas company will be an Associate. Notably, where there is a chain of corporate ownership with each entity owning 100% of the voting rights in the company “above”, middle chain entities will be “looked through”.

In this situation the legal entity which owns or long leases the land will be the Recorded Person and the individual(s) or entity at the bottom of the chain will be registered as the Associate as it holds the voting rights and overall control.

Unincorporated associations

Any individual who is not a registered or recorded owner/tenant and who is responsible for the day-to-day management and control of the unincorporated association will be noted as an Associate.

Non-compliance

The consequences of non-compliance with the RCI rules will be a criminal offence and will carry a fine of £5,000. There is a 12 month “grace period” until 1 April 2023 to allow parties to get to grips with the new register.

There are ongoing obligations to ensure that the RCI is updated (to include notifying the RCI when a person is no longer an Associate) and breach of this obligation will also result in criminal financial penalties.

Exceptions

There are notable exceptions to the requirement to register an Associate in the RCI.

Firstly, any entities who are already subject to pre-existing transparency regimes are not caught by the regulations and will not have to make a submission to the RCI – e.g. UK LLP’s, UK limited companies and public authorities, who already have to comply with the people with significant control register.

Secondly, there is an exemption on grounds of security - when an Associate believes that they (or someone connected to them) will be put at any risk by having their details included in the RCI, they will have the ability to send supporting documentation to the Land Register and subsequently not be included in the RCI. However, it is not yet clear how this exemption will work in practice and what will constitute being “put at risk” in order to trigger this exemption.

Finally, paid professionals (including solicitors) or creditors are not considered Associates.

How will the RCI work in practice?

More detailed guidance is awaited from Registers of Scotland, and the RCI is currently undergoing BETA-testing to tests its operation and efficacy. The Register will be fully accessible by the public both for making submissions and for searching. Solicitors will also be able to make submissions on behalf of their clients, when instructed to do so.

Comment

The consequences of the implementation of the RCI are far reaching - any person or entity who owns land or property in Scotland will need to consider whether the provisions of the RCI apply to them and if any Associates need to be declared. This will be particularly true for trusts, partnerships and overseas entities, who are those most likely to be affected by the RCI.

As 1 April nears, this is a key development which landowners, businesses and solicitors need to be acutely aware of. While there is a grace period of 12 months, solicitors and organisations alike should make the most of this grace period to familiarise themselves with the requirements and operation of the RCI.

More guidance on the RCI register can be found from Registers of Scotland here and from the Scottish Government here.