8 July 2024

Foreign Entities

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This article explores the outcomes that may arise if you fail to register in the ROE and the factors you should take into account when dealing with foreign entities that are purchasing UK property or hold extended leases or ownership of UK property acquired in Scotland after 8 December 2014, or in England and Wales after 1 January 1999.

Recent foreign entities that have acquired ownership of property in the UK:

Foreign entities (OEs) who plan to acquire a property or a lengthy lease of a property in the UK must first register with the ROE before submitting a land registration application. For lenders who are securing the property, it’s essential to ensure that the OE completes this registration process as soon as possible and is capable of providing all required information, which will need to be verified, for registration in the ROE. Additionally, lenders should assess whether their proposed loan documentation already includes sufficient compliance with laws and authorization undertakings to cover the OE’s obligations under the 2022 Act.

Managing foreign entities in property deals – Contrasts between Scotland and England:

Although limitations are noted on the titles of foreign entities (OEs) in the Land Registry for England and Wales, no such limitations are present in the Land Register of Scotland. Nevertheless, if an OE fails to register or update its information in the ROE, the Keeper of the Registers of Scotland will deny its land registration application. OEs who own property in Scotland must also determine whether registration in the Register of Persons Holding a Controlled Interest in Land (RCI) is necessary. If so, OEs must register in both the ROE and the RCI to disclose the individuals who control the OE and important decisions regarding the Scottish property.

Foreign entities (OEs) who were required to register in the ROE by 31 January 2023 but failed to do so are in violation of the 2022 Act and could face financial penalties imposed on both the OE and its managing officers. Companies House, in a recent statement, has announced its intention to pursue enforcement actions against non-compliant OEs.

Considerations to keep in mind when handling property deals that involve foreign entities:

Early identification of the following elements is crucial in the course of a transaction:

  • Whether the transaction involves UK property that is presently or prospectively held by a foreign entity (OE).
  • If so, whether the OE is required to register in the ROE.
  • If so, whether the OE is currently registered in the ROE.

If so, whether the registered OE has fulfilled its updating obligations under the 2022 Act.

  • In particular, parties undertaking due diligence in mergers and acquisitions or investment transactions should ask these questions, especially if the UK property will be sold by the OE or used as collateral for any financing received by the purchaser or investor.

The OE is in breach, what to do?:

If an OE needs to be registered in the ROE but is not yet registered, it is important to start the ROE application process as soon as possible, as gathering information and verifying the OE and its beneficial owners, if any, can be time-consuming. If an OE is non-compliant, it cannot provide warranties confirming compliance with all laws and regulations and must disclose the fact that it has not registered in the ROE and/or is not complying with its updating obligations. Furthermore, if an OE has not fulfilled its ROE duties, it cannot transfer title or grant security by way of deed. Parties entering into contracts with non-compliant OEs should demand immediate registration in the ROE. If an OE is registered but is in breach of the 2022 Act, the other party should require remediation of the breach and evidence of it. In both cases, the contracting party should not finalise the transaction until the registration in the ROE is complete and any non-compliance is remedied.

The main point to remember is that in transactions involving an OE that is purchasing, owning, or leasing UK property, it is crucial to obtain information regarding the OE’s registration in the ROE and its current compliance with the 2022 Act as early as possible. If the OE is found to be non-compliant, prompt remedial action is necessary to prevent penalties and to ensure that any disposition of, or charge over, the UK property is not blocked.

Disclaimer:

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Connaught Law and authors accept no responsibility for loss that may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please don’t hesitate to contact Connaught Law. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Connaught Law.

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