House of Companies has now confirmed that it intends to open the UK Foreign Entity Register on 1 August 2022. This note explains how the introduction of this register will affect financial transactions involving UK property.
General information about the UK Foreign Entity Register
- Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA) introduced the framework of a UK Foreign Entity Register – a register recording the ultimate beneficial owners of non-UK companies (and other companies with legal personality) holding property in the UK (the EO register).
- The OE Register will be administered by Companies House.
- Subject to certain transitional provisions, once the EO register is online:
- foreign entities holding UK land will be required to register with the OE Register and update the register information periodically; and
- UK Land Registries will refuse to register a wide range of property transactions involving foreign entities if those foreign entities are not registered on the OE Register and in accordance with their obligations to update information on the OE Register. Covered transactions include security interests in land granted by foreign entities and sales and purchases of land by foreign entities.
When will the OE register be operational?
As noted above, we expect the OE Registry to open on August 1, 2022. It is possible (but by no means certain) that there will be a short transition period during which foreign entities can enroll in the OE Registry. , but Land Registry restrictions will not apply. Even if there is a transition period, it may not exceed one or two weeks.
How does this affect financial transactions now?
For the purposes of the scenarios below, we assume (i) a transaction in which a non-UK company grants a mortgage on a property in England, (ii) the OE register will go live on 1 August 2022 as planned and (iii) there will be no transition period before the Land Registry restrictions apply.
- Scenario 1: The mortgage is granted in July 2022 and the registration of the mortgage at the Land Registry is completed before August 1, 2022. ECTEA will have no immediate involvement with the registration of the guarantee. The mortgagor will be under a legal obligation to register in the OE register within six months from August 1, 2022.
- Scenario 2: The mortgage is granted in July 2022 and an application to register the mortgage is made to the Land Registry before August 1, 2022. Provided that the application has been validly made, the Land Registry will process the registration as it was made on the date of the request, and ECTEA have no immediate impact on the registration of titles. The mortgagor will be under a legal obligation to register with the OE Register within six months from August 1, 2022. However, if there are any issues with the application, the Land Registry may require a new application be made, in which case Scenario 3 would be relevant.
- Scenario 3: The mortgage is granted in July 2022, but an application for registration of the mortgage is not made to the land registry before August 1, 2022. It will not be possible to apply for registration of the mortgage at the land registry from August 1, 2022 until the mortgagor is registered in the OE register. Parties should therefore seek to avoid this scenario, and any unforeseen complications, by applying for registration before 1 August 2022 whenever possible.
- Scenario 4: The mortgage is granted on August 2, 2022, the date on which the mortgagor is not registered in the OE register. It will never be possible to register the mortgage in the land register, even if the mortgagor is subsequently registered in the OE register. Once the OE register is online, the foreign entity must be registered at the time of the relevant transaction (unless there is a legal obligation to complete the transaction that arose before the OE register is online, such as under of a sale and purchase agreement).
Will it be easy for foreign entities to register?
Foreign entities will need to provide accurate information about their ownership to Companies House. One of the emerging practical difficulties is that this information must be verified by a UK-based agent who (i) is supervised under UK money laundering regulations and (ii) has a “code of Insurance” from Companies House. There is currently little information available in the market about organizations that are willing to provide this service. For more information on verification requirements, see this Companies House blog.
Do financial documents need to be updated in anticipation of the OE register going live?
The biggest immediate concern for lenders is likely to be transactions that close soon after the OE register goes live: it may be impossible to register a security interest in land at the land register if it is granted to completion by a foreign entity that is not listed in the OE register. at the time. To address this issue, lenders may require proof that the collateral provider was on the OE registry when they issued the collateral as a condition precedent to financing.
For transactions that will be closed before the end of July 2022, the general obligations imposed on mortgagors in the financial documents to register in the land register and comply with applicable laws, as well as general additional insurance obligations , will likely be sufficient to protect lenders. However, once the OE Registry is operational, it is likely that these will be complemented by further transactions with more specific obligations, particularly for foreign entities required to comply with all of their OE Registry obligations.