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The new Register of Overseas Entities: headlines for lenders

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Under the Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA), the Government has introduced a new Register of Overseas Entities.

Overseas entities (OE) which own real estate in the UK will be required to register information relating to themselves and their “beneficial owners” on a new register at Companies House. Once this has been correctly done, they will receive an overseas entity identification number (OEID).

Elements of the legislation are complex and guidance has been limited so we’ve pulled together our headline FAQs for lenders.

What are the key dates?

  • 1 August 2022: The parts of ECTEA that create a Register of Overseas Entities maintained by Companies House came into force.
  • 5 September 2022: The parts of ECTEA that amend the Land Registration Act 2002 by inserting a new Schedule 4A come into force.
  • 31 January 2023: End of the Transitional Period (whereby OEs which already own land in the UK have a 6 month grace period to submit their registration to Companies House).

Who needs to register?

An OE is a legal entity governed by the laws of a country or territory outside the UK. This includes entities formed in the Channel Islands. It does not include individuals.

The new requirements apply if that OE:

  • has owned a ‘qualifying estate’ in land in England and Wales since 1 January 1999 and still owned that property on 28 February 2022; or
  • intends to acquire or dispose of such a qualifying estate (a disposition includes granting a charge).

What’s a qualifying estate?

A qualifying estate is:

  • a freehold estate in land; or
  • a leasehold estate in land for a term of over 7 years from the date of grant.

When do they need to get an OEID?

OEs that are already a registered proprietor of a property need to have their OEID by 1 February 2022 or risk criminal liability and/ or a fine.

From 5 September 2022, OEs that are not already registered proprietors (so do not yet own the property) are required to have an OEID before they can make an application to register any disposition of a property. So OEs intending to acquire a property should be taking steps to register for an OEID in anticipation of the acquisition.

How do they get an OEID?

From 1 August 2022, this can be done by way of an application to Companies House, however prior to doing so the relevant OE must identify its beneficial owners and the information must be verified by an approved party. Only certain persons acting in the course of business carried on by them in the United Kingdom can verify information for the purposes of the register.

One of the key issues with the process at the moment is the lack of entities able or willing to carry out the verification process. The verification requirements are strict and go beyond the usual anti-money laundering checks that would be carried out. There is also the potential for criminal liability if the process is not properly done. There are some agencies looking into providing this service, however at this point in time it looks like the lack of verification services could cause some delays for those seeking to obtain an OEID quickly.

Can I take security from an existing property owner?

If the OE charging the property is already the registered proprietor of the property then lenders can take a charge over it.  So long as the application to register the charge is made to the Land Registry before 1 February 2023 the requirements of the new legislation will not impact the charge (although the OE will still be bound to obtain an OEID by 1 February 2023).

However, it is worth bearing in mind that if for any reason the charge is not registered by that date (for example, because of an error or other unforeseen event beyond the lender’s control) and a re-application is required on or after 1 February 2023, the charge will not be capable of being registered without the OE having an OEID.

Can I take security on a new acquisition?

From 5 September, where the OE is not already the registered proprietor then the OE must obtain an OEID before it is possible to apply to register the acquisition or the charge at the Land Registry.

If you apply to register a charge at the Land Registry between 1 August 2022 and 4 September 2022 inclusive, you technically do not need to provide an OEID at the time of making the application but if it has not been completed before 5 September 2022 (which seems quite likely) an OEID will need to be submitted or the charge will not be registered as the restriction is to be applied to the title on or after 5 September 2022. This is because the new Schedule 4A places an obligation on the Registrar to enter a restriction where an overseas entity is registered as proprietor on or after 1 August 2022. So this 5 week window provides little comfort in such a scenario.

So for new purchasers it is likely that lenders will require evidence of the OEID as a condition precedent to funding even if the application to register is to be made before 5 September 2022.

Going forward

Going forward, OEs are required to update the register annually or give a confirmation that there has been no change to its beneficial ownership. If for any reason this is not done between the point of granting a charge and the application for registration of that charge then the Land Registry is likely to refuse to register the application.

Documenting requirements

It is likely that OEIDs will be required as a condition precedent to funding where real estate owned by an OE is a significant part of the security package or is expected to become so in the future.

It is also likely that there will be ongoing compliance provisions within loan documentation, although some parties will find their existing ‘compliance with laws’ undertakings are sufficient.

As mentioned above, the legislation is complex and guidance is limited and changing and so these FAQs should be treated as a summary only. The risks and considerations should be carefully reviewed on a transactional basis with appropriate legal advice. Please contact your usual Gateley contact if you would like more information.

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