The Government’s commitment to ensure greater transparency and tackle corruption and fraud in the property sector continued in 2023 with the Economic Crime and Corporate Transparency Act 2023 ( ECCTA) and the Levelling Up and Regeneration Act 2023 (LURA) becoming law. Both contain measures to widen further disclosure obligations to help combat money laundering and achieve greater corporate transparency in the UK property market. In addition, 2024 begins with a new consultation on the transparency of land ownership when trusts are involved in the ownership structure. Specific views are sought on options to widen access to trust information held on the Register of Overseas Entities (ROE) and on how land ownership involving trusts can be made more transparent.
Economic Crime and Corporate Transparency Act 2023
The ECCTA has wide-ranging reforms to tackle economic crime and improve transparency over corporate entities. Companies House will have enhanced powers to combat economic crime, ensure the transparency of corporate entities which in turn improves the integrity of the public registers it maintains. Many of the provisions are not yet in force and require secondary legislation, including the changes impacting the real estate sector which are expected to be in force later in 2024.
In a real estate context, the ECCTA will amend certain existing provisions in the Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA). As a reminder, under the ECTEA in 2022 Companies House set up the ROE. This requires overseas entities who own UK property to identify who their registrable beneficial owners are, register their details with Companies House, and keep these details up to date. The two main objectives of ROE are to help combat money laundering and achieve greater transparency in the UK property market.
The main changes in the real estate context are:
- Overseas entities to provide a list of title numbers - on registration on the ROE and as part of each annual update statement, there will be increased administration as the OE will need to provide a list of the Land Registry title numbers for all UK properties owned. Practically, OE’s can locate this information by undertaking a search of the index of proprietors’ names (known as a PN1 search) at the Land Registry.
- Beneficial owners of UK land held by a nominee may require registration - it was identified under the ECTEA that where an OE holds property as a nominee for another party i.e. the beneficiary, it is only required to provide information in respect of its beneficial owners (but the fact it is holding the land as a nominee for someone else is ignored). This recognised gap has been corrected by widening the scope of who qualifies as a registerable beneficial owner of an OE, so that information will be required not only in relation to the beneficial owner of the entity but also in relation to the person or entity for whom they hold the property as nominee.
- All corporate trustee beneficial owners will qualify as registerable beneficial owners - A beneficial owner of an OE that is a trustee of a trust will now always be registrable. The expectation is that this will bring a lot of trustees and trusts into scope of registration that may not have been previously. See here for the Expert Insight into the key changes to trust reporting introduced by the ECCTA.
- Retrospective information reporting between 28 February 2022 and 31 January 2023 (the relevant period) – OEs will have to disclose changes in their registrable beneficial ownership, or confirm there have been no changes during the relevant period (this was the transitional period under the ECTEA)
Levelling Up and Regeneration Act 2023 (LURA) – Part 11 (Information about interests and dealings in land)
Part 11 of LURA sets out a framework requiring the disclosure of information (including transactional information) in respect of interests and dealings in land with the aim of achieving greater transparency around land ownership and control. Much of the detail will be set out in regulations (awaited but expected during 2024) and once these new requirements take effect, as yet date unknown, they will inevitably impact landowners, funders and developers.
The Secretary of State now has the power to require the disclosure of details and documents surrounding property ownership providing it serves one of the 3 permitted purposes under the LURA and the new measures appear very wide in scope. Failure to comply is a criminal offence and may prevent registration of a transaction at the Land Registry. Also, the provisions potentially have retrospective effect, as the information required may pre-date the coming into force of Part 11. Ultimately Part 11 is seeking to reduce the extent to which land ownership, control and transactional information can be kept confidential.
The information must be within the scope of one of the 3 permitted purposes:
- The beneficial ownership purpose - this allows information to be obtained in relation to identifying beneficial owners of land in England and Wales and/or understanding the relationship of the beneficial owners with the land they own. This will particularly affect properties owned by a corporate body or partnership, a trust. For overseas entities this may be particularly burdensome, since it does not appear that submission of information under Part 11 will also satisfy the requirements to identify and register their beneficial owners under the ECTEA.
- The contractual control purpose - this allows information to be obtained that would be useful to the purpose of understanding relevant contractual rights and identifying the persons holding them, as well as the circumstances in which they were created or acquired. Potentially wide in scope and could catch sale/ lease agreements, transfers, options and pre -emptions.
- The national security purpose - this allows information to be obtained that would be justified in the interest of national security, for example, around the location of the land or anything situated or done on it; and the information would be useful to identify the persons who own, control or have relevant interests or rights in the land.
As long as within the scope of a permitted purpose, the required information can include "transactional information", which includes:
- Details of the parties and those for whom they act.
- Transaction terms.
- Details of professional advisers.
- The source of funds.
- Copies of documents evidencing a transaction.
As much of the detail and guidance is still awaited, it is unclear how Part 11 will operate in practice and how it will impact transactional issues. It is also not yet clear if or where information provided under Part 11 will be published (perhaps held on a public register along the lines of the ECTEA) and what, if any, transactional information will be permitted to remain confidential.