Registration deadline of 31 January approaches for overseas owners (and potentially former owners) of UK real estate

Overseas owners of affected UK real estate have less than two months to register their beneficial owners at Companies House or risk significant difficulties for their real estate transactions as well as potential criminal sanctions. 

It is also important to be aware that any overseas entity that has disposed of all of its UK real estate between 28 February 2022 and the registration deadline of 31 January 2023 is not exempt from the rules.

Duty to register beneficial owners

The critical deadline is 31 January 2023, for affected overseas entities to comply with new duties imposed by the Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA) and register details of their beneficial owners at Companies House in order to obtain an overseas entity identification (OE ID) number and the status of "Registered Overseas Entity".

Those affected will include most overseas entities holding freehold or leasehold property (where the lease is for seven years or longer) in England and Wales. The Companies House register opened on 1 August 2022, allowing just six months for affected entities to get to grips with the new regime before they face the consequences of breach.

Consequences of not registering 

Breaches of ECTEA carry hefty fines and even custodial sentences for officers, although it would seem unlikely that the government will enforce for administrative errors at this early stage.

However, there may be significant practical consequences for an overseas entity that finds itself in breach as it will be unable to complete any major dealings with its UK real estate until the ECTEA formalities are in order. Any transfer, charge or grant of a lease for seven years or more cannot be completed until the overseas entity has disclosed its beneficial owners to Companies House and obtained confirmed status as a Registered Overseas Entity.

Are there any exceptions to the requirement?

ECTEA applies only if the overseas entity holds particular types of affected UK real estate: 

• In England and Wales, this means freehold interests and leases for a term of seven years or longer. If all holdings by an overseas entity are short term leases – for less than seven years, the ECTEA registration requirements do not apply.
• In addition, if all real estate was acquired and registered under applications made prior to 1 January 1999 in England and Wales, it will fall out of scope.

ECTEA envisages certain overseas entities qualifying as exempt from the regime, but no exemptions apply at present. All entities holding affected real estate which are governed by non-UK law must register as Registered Overseas Entities, including entities incorporated in Jersey and the Isle of Man.

It is not an exemption as such, but if the legal owner of real estate – the entity listed as the proprietor on the Land Registry title – is a UK entity, ECTEA does not apply. This is the case even where the shares in that UK entity are 100% owned by an overseas entity. Instead the disclosure requirements would be governed by the People with Significant Control regime.

What if all UK real estate has been disposed of before 31 January 2023?

If affected UK real estate was owned by an overseas entity on 28 February 2022, even if it has been disposed of by the registration deadline of 31 January 2023, the overseas entity is still required to disclose its beneficial owners to Companies House in a very similar way to entities that will continue to hold UK real estate after the registration deadline.

How does an overseas entity comply with ECTEA?

Overseas entities that own or owned affected real estate need to ascertain their beneficial owners, seeking professional advice if required. It is then necessary to seek verification from an authorised independent third party of the beneficial ownership information that is to be disclosed. A list of authorised verifiers is available on the Companies House website. 

The application for registration on the Register of Overseas Entities, together with the third party verification, is then submitted (often by the third party verifier) and processed by Companies House. An OE ID number is issued to confirm successful initial registration as a Registered Overseas Entity and the overseas entity's OE ID number, address and registration date together with details of its beneficial owners will appear in the public register available on the Companies House website. In exceptional circumstances, personal details of beneficial owners may be kept off the public register.

It is important that the overseas entity keeps the beneficial ownership details at Companies House up-to-date. This is an annual requirement rather than being event-triggered (such as where there is a change of control of the overseas entity) and the publicly available information at Companies House indicates when this update is due. Failure to update means that the entity will cease to be a Registered Overseas Entity and the consequences of not registering outlined above will apply (that is, the entity will be open to fines and issues arising in relation to its real estate transactions).

Next steps

Any overseas entities that own affected UK real estate and have not yet registered their beneficial owners at Companies House must take urgent steps to do so. 

It is important not to assume that disposing of all UK real estate before the 31 January 2023 registration deadline means that ECTEA will not apply – overseas entities should seek advice in relation to disposals made since 28 February 2022.

ECTEA is having wide-ranging impact on real estate transactions. If you need any further advice about how ECTEA may affect your business or transaction, please get in touch with your usual Osborne Clarke contact, or one of our experts listed below.