New laws affecting overseas companies involved in property transactions

Provisions affecting companies and other entities registered overseas have recently come into force under the Economic Crime (Transparency and Enforcement) Act 2022 and Schedule 4A of the Land Registration Act 2021. The new laws are intended to increase transparency in the ownership structure of overseas entities with the aim of reducing the use of UK property in fraudulent money-laundering schemes.

The provisions apply to overseas entities, being a company or other organisation with separate legal personality governed by the laws of a country or territory outside of the United Kingdom. Companies and other entities governed by the laws of the Republic of Ireland, Isle of Man or any other non-UK territory are caught by the provisions.

In order for an overseas entity to be registered as the proprietor of a property, it now must first be registered on the Register of Overseas Entities at Companies House with an Overseas Entity ID (unless it is exempt from the requirement). An overseas entity must also give Companies House details of any individual person or other entity (such as a company), trust or government/public authority which has significant control or influence over it. Broadly speaking, that means anyone that directly or indirectly holds more than 25% of the shares and/or voting rights in the entity and/or the right to appoint or remove directors and/or the right to exercise significant influence and control over the entity in any other way (whether or not the right to influence or control is actually exercised). Overseas entities must also file updates at least once per year after initial registration, informing Companies House of any changes or alternatively confirming that the information held by Companies House is still correct.

An overseas entity looking to register itself as a registered overseas entity should take specialist advice on the process. Failure to comply with the requirements could result in fines or a prison sentence of up to 5 years.

From now on, the Land Registry will enter a restriction on the title register of any property which is acquired by an overseas entity, or was acquired by such entity after 1^st January 1999. The restriction will prevent any disposition of the property by the overseas entity after 31 January 2023 from being registered at the Land Registry unless the entity making the disposition is properly registered on Companies House’s Register of Overseas Entities with an Overseas Entity ID. “Dispositions” broadly includes transfers (buying or selling), leases and charges. There are a couple of exceptions where the restriction will not apply - for example where a disposition is made in pursuance of a court order, or in pursuance of a contract which was exchanged before the restriction was entered on the title.

Practically, these new requirements will have an effect not only on overseas entities themselves, but also on those who are buying/letting property from overseas entities and selling/letting property to overseas entities. Whilst overseas entities will need to ensure they are correctly registered with Companies House and have an Overseas Entity ID, a party which buys/lets property from an overseas entity will want to make sure that the seller/landlord overseas entity is correctly registered with an Overseas Entity ID and maintains that registration through the process of registering the purchase/lease at the Land Registry, in order to successfully overcome the restriction on the title register and register the purchase/lease at the Land Registry. On the other side, a party selling/letting property to an overseas entity will also want to ensure that the buyer/tenant overseas entity has a valid Overseas Entity ID and maintains that throughout the buyer/tenant entity’s application to register its ownership/lease of the property at the Land Registry otherwise the Land Registry may well refuse to register the buyer’s ownership/tenant’s lease and the legal title to the property would remain in the seller/landlord’s name. Lawyers acting for parties on either side of a transaction involving an overseas entity should take steps to ensure sufficient contractual obligations are placed on the relevant party to enable registration of the disposition at the Land Registry following completion.

This blog is intended to be general information only and does not constitute legal advice. If you are looking for legal advice, please contact a member of the team on 01926 954694