27 Mar 2018

Register of beneficial owners of overseas companies – update

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As we highlighted last year, the Department for Business, Energy & Industrial Strategy has consulted on the launch of a Beneficial Ownership Register to increase the transparency of overseas investment in UK property.

If implemented, overseas entities dealing with UK property will be required to disclose their beneficial ownership structure.

Following the Government's call for evidence on the initial proposals, Stephenson Harwood LLP, along with 55 other stakeholders, gave feedback on the proposals.  The Government's response to this feedback has been published and can be viewed here.

Whilst the Government's response gives further clarity on the proposals, there remain a few areas for further consideration.

Economic impact

The Government's aim is to find a balance between strengthening the reputation and transparency of the UK property market whilst avoiding a significant loss of overseas investment.  However the question of what impact the proposed policy will have on the UK property market (both residential and commercial) remains unanswered.

The stakeholders' feedback revealed conflicting opinions as to whether the new register would deter overseas investors (put off by the increased scrutiny / administrative burden) or attract them (encouraged by the improved transparency and reputation of the UK property market).

The Government has therefore commissioned research on the impact of the new register on overseas investment.  However given the comprehensive nature of the consultation process to date, the intention to introduce a Bill to Parliament early in the second session (i.e. 2018), and the stated aim to have the new register operational in 2021, it is likely that the Government's mind is made up, irrespective of the results of the further research.

Protection of third parties

The original proposals acknowledged the need to ensure that existing charge holders should be able to enforce their security and effect an enforcement sale on behalf of a non-compliant overseas entity.

In our feedback to the Government on the proposals, we highlighted that this protection needed to be extended to also allow insolvency practitioners / receivers to dispose of property held by non-compliant entities.  The Government have agreed with this analysis and intend to develop the policy to ensure that it is compatible with insolvency procedures.

Restrictions on dealing with property held by non-compliant overseas entities

Following consideration of feedback received, the Government has concluded that where a transfer of property to a non-compliant overseas entity has taken place, the registration of the legal transfer will be prohibited, but the transfer of the beneficial interest will be valid.

This is not a desirable outcome given "registration gap" issues and potential liabilities resting with the seller, but it is hard to see a workable alternative.

Additionally, sellers (including lenders selling by way of mortgagee in possession) will be able to take comfort from having the ability to obtain independent confirmation as to the overseas buyer's compliance with the Beneficial Ownership Register prior to exchanging contracts.  They will also be able to obtain any additional warranties and indemnities from the buyer if they consider necessary.

Requirements to keep the register up-to-date

Rather than requiring overseas entities to update the Beneficial Ownership Register following each change to their ownership structure, the Government will only require updates to be carried out at certain intervals (initially proposed at 2 years, but consideration is being given to increasing this frequency).

The Government's concern that making the obligation to update the register "event driven" would be unduly onerous (and possibly expensive) for overseas entities is understandable.  However, enabling a mechanism whereby an overseas entity can deal with UK property (for a period up to 2 years) despite having amended its beneficial ownership structure with no disclosure requirement could be seen as falling short of the aim of the new register – i.e. making UK property holding as transparent as possible.

Types of land interest to be caught by the new regime 

The Government initially considered that compliance with requirements of the register would only be necessary on dealings with the freehold, or an interest akin to the freehold.  It therefore proposed only dealings with leases of over 21 years would be bound by the register requirements.

However the revised position is that the new regime should cover all leases of registerable duration – i.e. leases for a term of 7 years or more.

The Government has acknowledged the need to consider the proposals further and it will be interesting to see the draft bill due to be published this summer.

Property Week published a shortened version of this article on 4 April, if you would like to read this please click here.

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Archie Campbell

Archie Campbell
Senior associate

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