Companies House has confirmed that it intends to open the UK register of overseas entities on 1 August 2022. This note explains how the introduction of this register will affect finance transactions involving UK real estate.

Background on the UK register of overseas entities

• The Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA) introduced the framework for a UK register of overseas entities – a register recording the ultimate beneficial owners of non-UK companies (and other corporates with legal personality) holding UK real estate (the OE register).
• The OE register will be administered by Companies House.
• Subject to certain transitional provisions, once the OE register is live:
• overseas entities holding UK land will be under an obligation to register on the OE register and to update the information on the register periodically; and
• UK Land Registries will refuse to register a wide range of property transactions involving overseas entities if those overseas entities are not registered on the OE register and in compliance with their obligations to update information on the OE register. In-scope transactions include security over land granted by overseas entities, and sales and purchases of land by overseas entities.

When will the OE register go live?

As referred to above, we anticipate that the OE register will open on 1 August 2022. However, Companies House has also now confirmed that the land registration elements of ECTEA will not come into force until 5 September 2022.

How does this affect finance transactions completing now or in the near future?

Once the OE register is opened, overseas entities will have a period of just over a month to register on it before the land registration elements of ECTEA come into force. Once the register is live, a lender taking security from an overseas entity will generally want to see evidence that the overseas entity is registered on the OE register, and in compliance with its obligations to update information on the OE register, when the overseas entity grants the security. What are the consequences for a lender if this is not the case?

For the purpose of the scenarios below, we assume (i) a transaction in which a non-UK company grants a mortgage over a property in England, (ii) the non-UK company is not registered on the OE register when it grants the mortgage and (iii) the OE register will go live and the land registration elements of ECTEA will come into force on the dates indicated above.  

Transactions completed and registered before 5 September 2022

• Scenario 1: Mortgage is granted, and registration of the mortgage at the Land Registry is completed, before 5 September 2022. ECTEA will have no immediate implications on the registration of security. The mortgagor may be under a legal obligation to register on the OE register within six months of 1 August 2022. (On a strict reading of ECTEA, this obligation to register does not apply if the mortgagor applies to register itself as owner of the property on or after 1 August 2022 but before 5 September 2022. Even if that is the final position, such a mortgagor is still likely to be subject to restrictions on transferring, leasing and charging its interest from 5 September 2022 unless it is registered on the OE register.)

Mortgages granted on acquisition where registration not completed by 5 September 2022

• Scenario 2: Overseas entity buys the property and grants a mortgage over it on a date before 5 September 2022, and an application to register both is made to the Land Registry before 5 September 2022. Provided the application was validly made, the Land Registry will process the registration as made at the date of application and so this will be the same as Scenario 1.  However, if there are any issues with the application, the Land Registry may require a re-application to be made. If a re-application is made on or after 5 September 2022, Scenario 3 would be relevant.
• Scenario 3: Overseas entity buys the property and grants a mortgage over it on a date before 5 September 2022, but an application to register the purchase and the mortgage is not made to the Land Registry before 5 September 2022. It will not be possible to apply to register the transfer (and therefore by extension the mortgage) at the Land Registry on or after 5 September 2022 until the mortgagor is registered on the OE register. Parties should therefore seek to avoid this scenario, and any unforeseen complications, by applying for registration before 5 September 2022 whenever possible.
• Scenario 4: Overseas entity buys the property and grants a mortgage over it on a date on or after 5 September 2022, at which point the mortgagor is not registered on the OE register. It will never be possible to register the mortgage at the Land Registry, even if the mortgagor is subsequently registered on the OE register. If an overseas entity acquires a freehold or leasehold interest (with a term of more than seven years from grant) after 5 September 2022, it will immediately be subject to restrictions on transferring, leasing and charging its interest unless it is registered on the OE register or an exemption applies as at the date of that disposition.

Mortgages over pre-owned property where registration not completed by 5 September 2022

• Scenario 5: Overseas entity grants mortgage at any time up to and including 31 January 2023 and registration of the mortgage at the Land Registry is not completed before 5 September 2022. The overseas entity is already the registered owner of the property at the time that it grants the mortgage, having applied to be registered as owner before 1 August 2022. The mortgage will be capable of being registered at the Land Registry so long as the application is submitted on or before 31 January 2023, even if the overseas entity is not registered on the OE register at the time the mortgage is granted. However, if the registration of the mortgage is not accepted, and it needs to be re-submitted for registration on or after 1 February 2023, the Land Registry will not register the mortgage unless the overseas entity was registered on the OE register at the time the mortgage was granted. It would therefore still be prudent to ensure that the overseas entity is registered on the OE register at the time of granting the security.

How easy will it be for overseas entities to register?

Overseas entities will need to provide specified information about their ownership to Companies House. One of the practical difficulties emerging is that this information must be verified by a UK-based agent that (i) is supervised under the UK money laundering regulations and (ii) has an "assurance code" from Companies House. There is currently little information available in the market on organisations that are willing to provide this service. For more information on the verification requirements, see this Companies House blog.

Should finance documents be updated in anticipation of the OE register going live?

The biggest immediate concern for lenders is likely to be transactions that complete shortly after the land registration elements of ECTEA come into force: it may be impossible to register security over land at the Land Registry if granted at completion by an overseas entity that is not registered on the OE register at the time. To address this, lenders may require evidence that the security provider was registered on the OE register when it granted the security as a condition precedent to funding.

For transactions that will close before 5 September 2022, general obligations on mortgagors in finance documents to register at the Land Registry and to comply with applicable laws, as well as general further assurance obligations, are likely to be sufficient to protect lenders. However, it is likely that these will increasingly be supplemented on new transactions with more specific obligations, in particular on overseas entity obligors to comply with all their obligations relating to the OE register.