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18 Apr 2017

Who really owns that property? A new Register of Beneficial Owners


This note considers the Government's proposals for the establishment of a register recording the beneficial ownership of overseas entities that own UK property. The Government's aim is to strengthen the reputation and transparency of the UK property market without resulting in a significant loss of overseas investment.

Broadly, we expect the register to achieve the stated aim. However further consideration needs to be given in the proposals to ensure that a breach of the new requirements does not fetter the ability of third party lenders to enforce their security by way of distressed property sale.

The Department for Business, Energy & Industrial Strategy last week issued its call for evidence to seek views on its proposals for the implementation of a register of beneficial ownership information for overseas entities that own UK property ("the Beneficial Ownership Register"). This register would require overseas entities which own property in the UK to disclose their beneficial ownership structure onto a publically accessible register. Entities who do not comply would be prohibited from dealing with UK property and potentially face criminal sanctions.

A full copy of the call for evidence can be accessed here.

The consultation process remains open until 15 May and whilst the current proposals will no doubt be tweaked and refined, and the operational mechanics ironed out, it is clear that the creation of a register of beneficial owners of overseas entities holding UK property is not too far off.

The idea of a beneficial ownership register is borne from a desire to make the UK property market as clean and transparent as possible, and ensure the genesis of investment in the sector can be traced back to its source. In this respect, the proposals can be seen as an extension of the recently introduced Person of Significant Control Register ("the PSC Register"). The PSC Register is a register which, since April 2016, all UK incorporated companies are required to maintain in order record the identities of the people with significant control of the company.

In this note we consider whether the implementation of this regime will have an impact on the volume of overseas investors in UK property, and whether a failure by a borrower to comply with registration requirements will affect a lender's ability to enforce its security.

What would the new regime require overseas entities to do?

Whilst the PSC Register aims to achieve beneficial ownership transparency for UK incorporated companies, the Beneficial Ownership Register will seek to achieve the same level of transparency from overseas entities which own property in the UK. If this register is introduced, overseas entities will need to record (on a register to be held by Companies House) details of their beneficial owners.

Broadly speaking, if the proposals are adopted, a beneficial owner of an overseas entity will be defined as a person who:

  • Directly or indirectly holds more than 25% of the shares in the company; or
  • Directly or indirectly holds more than 25% of the voting rights in the company; or
  • Directly or indirectly holds the power to appoint or remove a majority of the board of directors of the company; or
  • Otherwise has the right to exercise or actually exercises significant influence or control over the company (with the meaning of "significant control" being set out in the guidance); or
  • Has the right to exercise or actually exercises significant influence or control over a trust or firm that is not a legal entity, which meets one or more of the above conditions.

This set of criteria mirrors the definition used for "beneficial owner" under the PSC Register regime and so seeks to apply a consistent set of requirements for UK companies and overseas entities.

What information must go on the register?

The information required from the overseas entities will, under these proposals, also follow the level and type of information that is required for the PSC Register. This includes: the beneficial owner's name; nationality; country of residence; address for service and nature of his/her control over the company. The beneficial owner will also need to provide their date of birth and usual residential address although this information will not be publically available under the proposals. The overseas entity will be required to update its register at least every two years (although can do so more often if it wants to).

Will the registration requirements deter overseas investors?

A legitimate concern regarding the implementation of the Beneficial Ownership Register is the risk of it placing disproportionate burdens on overseas entities and thus discouraging reputable investors from the UK property market.

However, to assess the legitimacy of this concern, thought should be given to how many overseas investors will be put-off by the new proposals. Overseas investors are playing a major, and increasing, part in the UK property market and account for £122bn of the UK property market. The vast majority of these investors should not have any concerns with being transparent as to their beneficial owner(s). Whilst compliance with the Beneficial Ownership Register may be viewed as inconvenient and an additional administrative burden, this complaint is unlikely to be strongly enough held to deter potential investors given the attractive (and relatively secure) profits available through investing in and holding UK real estate.

Additionally, it should be noted that the Government have sought to minimise the registration requirements in circumstances where they are satisfied that other robust regimes are in place to provide the necessary transparency as to beneficial ownership. For example, the proposals include an exemption for entities incorporated in countries with disclosure requirements equivalent to the PSC regime. Given the requirement of the European Fourth Money Laundering Directive dictating that all entities incorporated in the EU must provide beneficial ownership information to a central register by June 2017, this will mean that all European Union companies will be exempted from further Beneficial Ownership Register requirements.

How will it be policed?

Under the current proposals, overseas entities will be prevented from carrying out the following dealings with UK property unless they have provided information about their beneficial owners for the new register:

  • Buying or selling;
  • Taking or granting a lease of over 21 years; or
  • Granting a charge.

In order to police this, overseas entities wishing to conduct any of the above transactions will be required to register their beneficial ownership information with Companies House. Once that is done, the entity will be allocated a registration number. This registration number must then be given to the Land Registry on any application to register any of the above dealings.

These restrictions on dealings will apply not only when an overseas entity wishes to acquire new property, but also on disposals of existing property even if that property was held prior to the implication of the Beneficial Ownership Register requirements.

Effect on lenders' ability to enforce security and dispose of property

An area where we consider additional thought is required concerns distressed disposals following the insolvency of a non-complying overseas entity. Whilst the proposals acknowledge that charge holders should be able to enforce their security and effect an enforcement sale of property on behalf of a non-compliant overseas entity (i.e. exercise their power of sale as mortgagee), the proposals do not currently address sales by insolvency practitioners / receivers. Insolvency practitioners / receivers enter into property sale agreements as agents for the seller in order to realise returns for creditors. It is our view that there should be exemptions to allow insolvency sales to be completed (and registered at the Land Registry) despite a failure by the overseas selling company to comply with its beneficial ownership registration requirements.

If, for example, an administrator were prevented from selling a property due to the insolvent property owner having failed to comply with its beneficial ownership requirements, the creditors of that entity would be unable to recover the amounts due to them through a sale by the administrator. It strikes us that this is an oversight in the proposals rather than a deliberate position. However, given that the current proposals do recognise the need for a lender to retain its ability to sell by way of exercising their power of sale, it is possible that the Government consider this recourse to be sufficient without allowing further concessions for disposals by insolvency practitioners/receivers. Government clarity on this point is required.

It is acknowledged that if insolvency practitioners are permitted to dispose of a property despite the insolvent entity's failure to comply with beneficial ownership reporting requirements, a difficulty arises if the proceeds of the property sale result in a surplus once creditor debts have been settled. Whilst in the normal course of business the surplus would be repaid to the insolvent entity, this may be seen as an undesirable outcome here if satisfactory beneficial ownership information had not been recorded on the register.

This issue of the treatment of distressed sales is one we have raised in the consultation process and we look forward to hearing Government feedback on this.


If adopted, the proposals would be a further tool in helping the Government stem the flow of illicit money into UK property. The UK's reputation for clean and transparent investment would increase and an extra hurdle would be created for those who wish to invest in the UK for nefarious reasons.

The desire to ensure the UK property market is transparent and clean is admirable, and the implementation of a Beneficial Ownership Register is viewed as a sensible and proportionate step along this path.

Whilst there may be teething problems in implementing the proposals, the successful implementation of the PSC Register shows that setting up a register of beneficial owners is achievable.

However further consideration does need to be given to ensure that lenders are not restricted in their enforcement actions due to a borrower failing to comply with the Beneficial Ownership Register requirements. The power of correctly appointed insolvency practitioners to deal with the property should not be fettered by the property owner's failure to comply with the beneficial ownership register requirements.

An edited version of this article has since been published in Property Week, please click here to view.



Archie Campbell

Archie Campbell

T:  +44 20 7809 2377 M:  Email Archie | Vcard Office:  London