Final call for overseas entities: Clock is ticking for unregistered overseas entities

Less than three weeks remain before the registration deadline to the Register of Overseas Entities on 31 January 2023.

A majority of overseas entities that hold land in the UK are yet to complete their registration. At the time of writing, just over one third (11,647) of the estimated number of overseas entities (31,500) have successfully completed their application to join the register, leaving a significant number at risk of penalties, restrictions and criminal liability due to failure to comply with the Economic Crime (Transparency and Enforcement) Act (ECTEA) and the 31 January 2023 deadline.

As detailed in our previous articles ‘We have lift-off – the new register of overseas entities holding UK land and property is now open for business!’, and ‘Action required NOW by all foreign companies and other overseas entities that own or acquire UK land and property’, all applicants are required to have registered, or at least have submitted a pending application to register under the ECTEA, by the 31 January 2023 deadline.

Failure to meet the deadline is not only significant for the overseas entities’ ability to buy and sell, lease or charge property, but also for parties to a transaction with an unregistered overseas entity, as they will not be able to buy off, or take a lease or charge from, the overseas entity until registration is complete.

What are the main consequences of overseas entities not registering by the 31 January deadline?

Restrictions to registered qualifying estates

Overseas entities who applied to become registered proprietor of a qualifying estate on or after 1 January 1999 will be subject to restrictions. HM Land Registry has already begun adding restrictions to registered qualifying estates in England and Wales, blocking any disposition of the qualifying estate (including transfers, granting of leases and granting charges over the property) after 31 January unless they are registered. 

Unable to buy, sell, lease or charge property in the UK until registered

For overseas entities wishing to complete transactions, non-registration would prevent the purchase or sale of a property, the completion of a lease of over seven years and the ability to grant charges over a property.

Risk of committing several criminal offences 

Failure to at least submit an application for registration by the deadline will make the overseas entities and every officer of the entity liable for financial penalties and custodial sentences of up to two years. 

Why is it important to register now?

Registration can be a time-consuming process due to the ‘reasonable steps’ that the ECTEA requires overseas entities to take to register. Verification of information submitted by a UK-regulated agent, and completion of information notices are two steps which may cause delay: 

Verification agents

The information that needs to be submitted in accordance with the ECTEA must be verified by a UK-regulated agent. 

Clarifying what information is required from which specific member(s) of the overseas entities, sending the information to the agent, and the time needed for the agent to verify the information provided can become time-consuming, particularly for overseas entities who have complex beneficial ownership structures.

Information Notices 

The ECTEA requires information notices to be sent to ‘any person that it knows, or has reasonable cause to believe, is a registrable beneficial owner in relation to the entity’. 

Verification agents would be unable to complete verification of the application without responses to the information notices. Recipients of information notices have up to one month to respond, so overseas entities would be advised to ensure notices are completed and returned in a timely manner to avoid delay.

Action to take for overseas entities  

It is vital that overseas entities register or, at minimum, begin the registration process, within the deadline to be able to continue acquiring and disposing of property and avoid liability for penalties and criminal offences.

In accordance with the ECTEA, identifying who the beneficial owners of the overseas entity are, ensuring they complete information notices accurately (and timely!) and appointing a UK-regulated agent to verify the application are some important steps to take to not only ensure successful registration, but to ensure that the overseas entity has submitted an application for registration by the 31 January deadline.

Comment 

Overseas entities should endeavour to have registered by 31 January, or at least have submitted an application. However, for the reasons given above it may already be too late in some cases.

While we anticipate an initial light touch approach to enforcement and that some consequences of missing the deadline may be prevented by demonstrating that the registration process has begun and will be completed as soon as possible, transactions could be severely disrupted for both buying and selling parties should the overseas entity involved not yet be registered. 

To avoid the risk of losing business, disruption to transactions and being liable for the consequences of missing the deadline, entities should not underestimate the potential for delay when completing the registration process.

The expected late rush of applications to register at Companies House, in addition to defective applications being rejected, are yet more examples of how the registration process may in reality turn out to be longer than expected.