Following our recent articles covering the technical aspects of the Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA), we have set out below some practical tips which may be helpful to consider, either when contracting with an Overseas Entity (OE) or if you are an OE which owns UK property.
1. Be aware
ECTEA is a new and complex piece of legislation that was brought in at speed. Its intention was to promote transparency around the beneficial ownership of land in the UK by OEs by preventing them dealing with, or acquiring, property in the UK unless and until they have complied with its requirements. To achieve this, the Land Registry will now place a restriction on the titles to properties owned by OEs which will prevent them from dealing with their property until they have complied with the legislation. Furthermore, an OE will not be able to register as a proprietor of certain interests in property without providing evidence of compliance. The legislation is far reaching and will affect parties seeking to transact with OEs as well as OEs themselves. The definition of “OE” under ECTEA incudes companies registered in the Isle of Man, Guernsey and Jersey and there are some variations in the provisions/key dates for properties registered in Scotland and Northern Ireland.
Given the sanctions for non-compliance are serious, ranging from fines to imprisonment, it is crucial that OEs, and those advising and dealing with them, understand how ECTEA will affect them and how it will impact on their transaction. Please see the detail set out in our previous articles which highlight the key dates and provisions of ECTEA which will affect OEs owning UK property.
Whether you are an OE or entering into a property transaction with an OE, you should ensure the OE is aware of, and taking advice in respect of its obligations under ECTEA.
2. Make early enquiries
Where an OE was registered as the proprietor of English or Welsh property prior to 1 January 1999, ECTEA will not apply and there are currently no requirements for them to register under ECTEA.
If an OE became registered proprietor of the property on or after 1 January 1999, there will be requirements under ECTEA to register on the Register of Overseas Entities (ROE), ahead of certain milestones set out under ECTEA. Completion of registration on the ROE will generate an OE identity number which will be unique to that OE (and prefaced with “OE”). This OE identity number helps demonstrate compliance with ECTEA registration requirements and should be incorporated in the transaction documents.
You can identify whether an OE has already completed its registration on the ROE by searching the Companies House website. The ROE has been integrated into the Companies House register here.
This is (largely) a public register, and if the OE is registered on the ROE then the search will return their result with an OE identity number. If you are provided with an OE identity number, you can also search using this number to confirm the OE’s registration details.
3. Be prepared
The process for registration at Companies House will involve collating and presenting detailed information about the OE’s UK property ownership and the beneficial ownership of the OE, including its managing officers and those with significant control. If it hasn’t done so already, an OE, which is affected by the legislation, should start this information gathering exercise now.
The process may involve advisors from a number of jurisdictions and the information will need to be verified by an approved third party agent, based in the UK and supervised under the money laundering regulations. Consideration should be given as to which agent will be used to carry out the verification and who, within the OE, is best placed to manage the registration process.
This has the potential be a fairly onerous and time intensive process and for this reason should be dealt with as early as possible, preferably well ahead of any deadlines imposed in the legislation or any deal.
Once registered, OEs will need to provide an annual update to comply with ECTEA.
4. Be Proactive
If you are dealing with an OE on a property transaction and you are aware that the transaction will be caught by ECTEA requirements, you should include reference to this in any Heads of Terms. This does not need to be overly complicated but should act as a timely prompt for those involved in the deal and highlight that the transaction will need to be conditional on ECTEA compliance.
Ask questions about the status of their application to register on the ROE and when they expect this to be completed.
5. Seek advice
If ECTEA applies to the parties in your deal consider whether it is necessary to get specific advice on the application of the legislation and whether this needs to be reflected in the transactional documents, for example contractual protection against non-compliance with ECTEA and/or obligations on the OE to register at Companies House. It is important to remember that one size does not fit all so do not assume that ECTEA will apply in the same way to different deals.
6. Consider the wider issues
ECTEA will bite in the most common property transactions involving an OE and the parties to these affected transactions will be keen to ensure compliance given the resultant inability to register the transaction at the Land Registry, if the OE has not complied.
It is worth considering whether ECTEA compliance is necessary, for internal governance or reputational reasons, regardless of whether the transaction is one which is caught by the legislation. It is understandable that an organisation might be cautious about entering into a property deal with an OE that has not registered, particularly given the aims of the legislation, the sanctions and the potential for adverse publicity and reputational damage. In these instances, parties may wish to consider including some drafting to ensure that the OE will comply and continue to comply with any ECTEA requirements, even where the transaction itself is not caught, for so long as they are in a contractual relationship.
Given ECTEA is in its infancy, it remains to be seen how market practice will develop in this area.
7. Be realistic
Thus far, Companies House appear to have been fairly swift in dealing with applications to register on the ROE. However, as the deadlines under ECTEA are approaching, it seems likely that the volume of applications to Companies House will increase and it is unclear whether Companies House will have the resource to continue to deal with the applications as quickly. Given the potential for delays it would be advisable to ensure that any timings eg longstop or completion dates in documents and any linked transactions (such as agreements for lease) are sufficiently realistic to allow time for compliance with ECTEA.
