Summary

On 23 July 2018, the UK Government confirmed it would legislate to introduce a new public register of ownership for all non-UK legal entities that own UK property. The register will be the first of its kind in the world and will directly affect all legal entities that own, or intend to own, UK property. The regime’s categories of owners and controllers will resemble the existing people with significant control (PSC) register, which has applied to all UK companies since June 2016. Current expectations are that the register will become effective in 2021.

In Depth

As part of the UK Government’s ongoing efforts to improve corporate transparency, on 23 July 2018 the Department of Business, Energy and Industrial Strategy issued draft legislation which, if passed in its current form, will introduce an obligation on all non-UK entities which own UK land to identify and disclose their owners and controllers. The proposals have not yet been fully finalised and are still subject to consultation until 17 September 2018, but the core implications are as follows:

• All non-UK entities that own or wish to purchase UK land of any description will need to register with the Companies’ Registrar, and as part of this will have to provide information on their owners/controllers.

• The registrable information regarding such owners/controllers will closely mirror the current PSC regime, requiring non-UK entities to identity individuals who directly or indirectly own 25 per cent or more of the entity’s capital or voting rights; have the right to remove or appoint the majority of the entity’s board; or who in fact exercise, or have the right to exercise, significant influence or control over the entity or a trustee/partnership which meets any of the foregoing criteria.
• This information will need to be updated or confirmed as accurate every year.
• Without such registration, the entity will not be able to register as the owner of property at the Land Registry, which could prevent the sale or further lease of the land. It is also proposed that the purchaser would, in effect, not receive full legal title to the land without being registered.

Who Is Covered?

This regime is aimed at entities established under the laws of a jurisdiction outside the United Kingdom which, under those same laws, have separate legal personality.

Any such non-UK entity which either owns or wishes to purchase most interests in UK land (residential, commercial or otherwise) will be covered by the obligations. From an English perspective, freeholds and leaseholds over seven years will be caught.

What Will Change?

Rather than simply registering the non-UK entity’s legal ownership with the relevant UK land registry (England, Scotland and Northern Ireland have separate registration regimes already, and this will be mirrored in the new regime), the non-UK entity will need to register with Companies House and be issued with a registration number to allow it to become a registered owner of UK land. In order to obtain that registration number, the non-UK entity will need to disclose detailed information about its owners and controllers.

What Needs to Be Registered?

The non-UK entity will need to register specific details about itself, but the centre of the proposed regime is the non-UK entity’s owner/controller register, based on and closely resembling the existing UK PSC register. The register would be held at Companies House, would be publicly available and free to search, and is intended to include information such as the name of the individual owners/controllers identified by the non-UK entity together with those individuals’ date of birth, nationality, usual residential address, service address, country or state of usual residence, and the nature of their control over the entity. The individuals’ residential address will not be made public, nor will the day of the month of their date of birth.

The Government intends to adopt the same definition for owner/controller as the one that underpins the UK PSC Register, and adapt it to accommodate different types of entity. Therefore, any individual who meets one or more of the following criteria will be considered a reportable person for the purposes of the new register:

• Holds (directly or indirectly) more than 25 per cent of the shares in the non-UK entity

• Holds (directly or indirectly) more than 25 per cent of the voting rights in the non-UK entity

• Has the right or ability to replace more than half the board of the non-UK entity

• Has the right to, or does in fact, exercise significant influence or control over the non-UK entity

• Has the right to, or does in fact, exercise significant influence or control over trustees (or members of a firm) where such trustees meet one of the foregoing criteria

If the beneficial owner happens to be another entity, the non-UK entity will be required to take steps to identify and disclose the ownership and control further up the ownership chain until either a relevant individual is identified or it is clear there is no such controller. In the latter case, the company’s managing officers must be registered.

There will also be provisions for individuals who hold rights or shares collectively, so that their beneficial ownership cannot go unreported as a result of dilution of their shareholding (or equivalent).

What Are the Sanctions for Failure to Comply?

Serious practical repercussions could stem from failure to register beneficial ownership. Without the aforementioned registration number, the entity will not be able to register the acquisition of property at the Land Registry. Inability to register as the owner of the land will make it nearly impossible to effectively sell, grant security over (including by mortgaging), lease or otherwise transact with the land. Entities that currently hold UK property will be granted an 18-month transition period.

Furthermore, failing to comply with registration requirements, failing to update information, or supplying false or misleading information will be criminal offences committed by the company’s officers.

Practical Considerations

If the UK Government decides to go ahead and implement the proposals in the form published with the consultation, which it has given every indication it intends to do, the register will create an additional compliance obligation for entities that own or intend to buy UK property.

This obligation may be particularly burdensome for companies or trusts with more complex structures, as applying the rules to identify PSCs and then collating the necessary information can be a time-consuming task. The application of the existing PSC regime to a trust holding various assets, including an overseas company owning UK property, is unlikely to be straightforward. That said, given the very broad scope of the definition of “significant influence or control,” it is likely that someone who has the right to use the UK land or does in fact use it by virtue of the person’s relationship to the ownership trust will be disclosable. Furthermore, persons such as settlors and protectors of trusts will also likely be disclosable, but this will be fact-specific for each structure.

In advance of 2021, it will be prudent for structures which do not already contend with the United Kingdom’s existing PSC regime (because they do not own a UK company directly or indirectly) to undertake a PSC analysis to identify who may need to be disclosed when these rules are expected to come into force.