The Scottish register of persons holding a controlled interest in land

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The Scottish register of persons holding a controlled interest in land

The Scottish register of persons holding a controlled interest in land

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Updated May 22, 2023

Transparency has never been higher on the agenda of government. And, in that regard, we mean both UK government and the Scottish Government.

There has been much publicity about the Economic Crime (Transparency and Enforcement) Bill which established the UK Register of Beneficial Owners of Overseas Entities (ROE), but not so much has been written about the Scottish Register of Persons holding a Controlled Interest in Land. This came into force on 1 April 2022¹ and established a new register "designed to ensure that there can no longer be categories of land owner or tenant where, intentionally or otherwise, control of decision-making is obscured"². This register will be known as the Register of Controlled Interests or RCI.

Who is in scope for the RCI?

Firstly, you have to (a) own or (b) tenant land under a registered lease in Scotland. This person is referred to as the Recorded Person in terms of the regulations.
Secondly, there has to be an Associate as is referred to in the regulations. An Associate is broadly someone who is not the Recorded Person, but has, to some extent, a power to direct what happens with regard to that property, or has control or influence over the decision-making for the property.

General exclusions for double reporting in another UK transparency regime

Schedule 2 of the regulations excludes from the scope of the RCI any Recorded Persons who are entities which already report in another UK transparency regime. This therefore takes various entities out of scope including:

charitable incorporated organisations;
those who report in the Register of People with Significant Control (PSC Register) held by Companies House (including UK companies, limited liability partnerships, Scottish limited partnerships, European public limited-liability companies and certain UK body corporates);
public authorities to which Freedom of Information legislation applies; and
certain bodies who report to the Financial Conduct Authority for publication in the Register of Mutuals.

What are not yet excluded from the RCI (and, in fact, are expressly included in the scope of the RCI) are overseas entities. This is because, when the RCI regulations were passed, there was no indication of when the ROE would come into force. As we have all seen, world events brought the ROE back to the top of the priority list and the ROE was brought into force much sooner than expected.

Further legislation would be required to remove overseas entities from the scope of the RCI so, notwithstanding that double reporting was never originally intended, overseas entities currently have to report in both the RCI and the ROE.

What needs to happen if there is an associate?

If there is an Associate, the Recorded Person is obliged to notify the Keeper of Registers of Scotland about the Associate and provide certain Required Information (see below).

The Keeper then makes an entry about the Associate in the RCI.

The RCI will be a public register which is free to search.

Who can be an associate?

There are five broad categories that would trigger a requirement to make a disclosure of an Associate in the RCI. These are:

Category of Recorded Person	Requirement for the Recorded Person	Requirement for the Associate
Individuals with contracts/arrangements with others	Where the Recorded Person is an individual who has a contract or other arrangement with an Associate AND	As a result of this contract or other arrangement, the Associate can exercise significant influence or control over the Recorded Person's dealings with the land.
Partners or partnerships	Where the Recorded Person owns or tenants the land as a partner in a partnership or is a partnership AND	The Associate is: a general partner of the Recorded Person, but is not registered as owning or leasing the land; a general partner of another partnership which is a partner of the Recorded Person; an individual who has significant influence or control over a relevant entity which is a partner of the Recorded Person; or is an individual who can exercise significant influence or control over the Recorded Person or a partnership in which the Recorded Person is a partner.
Trustees or Trusts	Where the Recorded Person owns or tenants the land as a trustee of, or otherwise on behalf of, a trust AND	The Associate: is a trustee of the trust but is not registered as being the owner or tenant of the land; is an individual who has significant influence or control over a relevant entity which is a trustee of the Recorded Person; is an individual who can exercise significant influence or control over the Recorded Person or the Trust.
Unincorporated bodies (e.g. voluntary groups, sports or youth clubs, village hall associations and faith groups)	Where the Recorded Person owns or tenants the land as a trustee of, or otherwise on behalf of, the members of an unincorporated body of persons AND	The Associate: is responsible for the general control and management of the administration of the body; and is not registered as owning or leasing the land
Overseas entities	Where the Recorded Person is an overseas entity AND	The Associate: has more than 25% of the voting rights in the Recorded Person; has the power to appoint or remove a majority of the board of directors of the Recorded Person (or if it does not have a board, the equivalent management body); can exercise significant influence or control over a partnership or unincorporated body which is not a legal entity or a trust, but in respect of which either the above two paragraphs would apply if the partnership, body or trust were an individual; or can otherwise exercise significant influence or control over the decision-making of the Recorded Person, particularly in respect of its dealings with the land.

There are various exceptions to the requirement to make a disclosure of an Associate in the RCI, and further clarification is also offered in the regulations about what may constitute significant influence or control in various circumstances. However, working out whether or not there is an Associate and whether or not there is a requirement to make a disclosure of such in the RCI has the potential to be complicated in many situations.

What is the obligation on the recorded person?

The Recorded Person must provide the Keeper of Registers of Scotland with the Required Information in relation to any Associate within 60 days of that association beginning.
When the RCI regulations came into force on 1 April 2022 this triggered an obligation on all existing Recorded Persons with Associates to disclose that Required Information to Registers of Scotland – or, in other words, the RCI will need to be "backfilled" with all existing associations as well as future associations created after 1 April 2022.
Transitional period: There is a grace period meaning that the penal provisions will not apply until 1 April 2024.
The Required Information that needs to be provided to the Keeper includes:

The details of graph are explained in the narrative

If the Associate is an individual and the inclusion of information in the RCI about them would put them at risk of violence, abuse, threat of violence or abuse, or intimidation, the Associate may apply for a Security Declaration. If they are successful in obtaining a Security Declaration, the RCI will not contain the Required Details of the Associate.

Criminal consequences for non-compliance

Unlike the ROE, there are no civil consequences for being in breach of obligations under the RCI regulations (meaning that there is no bar to dealings with land interests).

However, failure to comply with the Recorded Person's duties to provide the Required Information to the RCI register is an offence. The penalty is a fine of up to level 5 on the standard scale, which is currently £5,000. It is worth bearing in mind, however, that there is no such financial limit on the cost of reputational damage.

Conclusion

Other UK transparency regimes will remove many owners or tenants of Scottish land from the scope of the RCI. However, with the threat of criminal consequences, the RCI is not something that can be ignored.

Where the RCI is invoked, determining whether or not there is an obligation to register Associate details in the RCI will not always be clear-cut or straightforward.

Additionally, the point at which registration in the RCI is triggered will frequently not be a transaction on which legal advice is being taken (e.g. when the office bearers of a village hall committee change at an AGM). Compliance with the obligations in the RCI therefore relies on owners and tenants of land having a good understanding of the triggers for registration and knowing when to seek further bespoke advice.

If you think you may be a Recorded Person in terms of the RCI regulations with Associate(s), please contact us for further advice.