Laura Kendrick, Kate Wilson and Alex Wright round up the five major developments in the Economic Crime and Corporate Transparency Act 2023.
As part of the government’s strategy to tackle economic crime in the real estate sector, the Economic Crime (Transparency and Enforcement) Act 2022 introduced a requirement for overseas entities holding land interests in the UK to register with Companies House. Among various corporate transparency reforms, the Economic Crime and Corporate Transparency Act 2023, introduced in October, makes five key changes in relation to the register of OEs. The date these changes will take effect is unknown, but they will be of interest to owners, investors and lenders.
Companies House power to revoke registration
Companies House will have the power to revoke an OE’s “registered” status if it does not comply with a compliance notice sent by Companies House. A revocation would prevent the OE from being able to deal with its registered property interests until it has retained its registered status.
Given the restrictions in dealing with land for an unregistered OE, it will be important to owners (and lenders) to ensure any such notice is dealt with promptly.
OEs to provide a list of all title numbers
On registration and as part of each annual update statement, an OE will need to provide the title numbers (or equivalent) of all qualifying estates in UK land that it is the registered proprietor of.
As a point of detail, it is expected that the list of title numbers should reflect those title numbers that the OE is the registered proprietor of at HM Land Registry (regardless of whether there are disposals/acquisitions pending) – it may not therefore be a case of identifying the property that an OE “owns”.
Care will need to be taken to consider how the list of title numbers can be generated for each OE. A PN1 search at the Land Registry or an alternative search provider may be useful starting points.
Changes for nominees holding land and trust arrangements
■ Nominees holding land
Currently, an OE that acts as a nominee holding land is only required to provide information in respect of its beneficial owners (but the fact it is holding the land as a nominee for someone else is ignored).
This loophole has now been corrected, such that a person or entity (or its beneficial owner) for which land is held by a nominee may be “registrable”, meaning that information in respect of them will need to be disclosed on the register of overseas entities.
■ Corporate trustees will become registrable
A beneficial owner of an OE that is a trustee of a trust will now always be registrable, no matter where it is in the ownership structure and irrespective of whether a registrable beneficial owner is identified lower in the structure. The expectation is that this will bring a lot of trustees and trusts into scope of registration that may not have been previously.
In addition, all corporate trustees that are beneficial owners of an OE by virtue of being a trustee will now be registrable (previously only those subject to regulation/disclosure requirements were registrable).
■ Trust settlors/grantors
Where a trustee is a registrable beneficial owner as a result of being a trustee of a trust and it has a corporate settlor/grantor, information must now also be provided on any registrable beneficial owner of that settlor/grantor entity.
In anticipation of the new provisions entering into force, owners may wish to (i) re-analyse their structures to identify any persons who may now be considered registrable or any additional information that must be submitted; and (ii) prepare to serve the relevant section 12 notices on such persons.
Reporting of changes throughout the annual update period
An OE is required to report on changes to details of itself and its registrable beneficial owners during an update period. Given the changes detailed, there will be an increasing amount of information to be disclosed (including an express requirement to declare changes to the beneficiaries of a relevant trust and to serve section 12 notices on persons that have ceased to be registerable beneficial owners).
Identifying such changes in an ownership structure throughout the year may be increasingly problematic, particularly in the case where ownership of an OE changes within a year. We expect that those acquiring OEs will want sellers to pre-emptively file annual statements as a condition precedent to an acquisition so that a buyer achieves a clean reporting position going forward.
Retrospective information reporting between 28 February 2022 and 31 January 2023 (the relevant period)
For OEs that held UK land on 28 February 2022, disclosure of changes to registerable beneficial ownership in the “relevant period” only had to be made to the extent that the OE had made a qualifying disposition of UK land since that date. There is now a requirement that all OEs disclose any changes in registrable beneficial ownership, including applying retrospectively the new disclosure requirements above, in the relevant period.
Given the passage of time, owners may wish to identify any such disclosable changes now so as to avoid having to do this exercise in 2024 and beyond.
Laura Kendrick is an associate, Kate Wilson is a professional support lawyer and Alex Wright is a senior associate at Herbert Smith Freehills