Since 6 April 2016, unlisted UK companies and LLPs have been required to identify individuals who have significant interests in their shares, and publicly disclose their details in a "PSC Register". The Government has been taking steps since then to introduce greater transparency into the ownership of land, such as increasing the remit of 5AMLD to oblige a much wider range of trusts to register with HMRC's Trusts Registration Service, drafting legislation to introduce a register of overseas entities that own land and consulting on a register of contractual arrangements used to exercise control over the buying or selling of land.
Transparency in the Real Estate sector: who owns this now?
The Draft Registration of Overseas Entities Bill
We wrote in 2017 about the Government's plans to create a register of beneficial ownership information for overseas entities that own or buy UK property or participate in UK central government procurement. The register is intended to help prevent UK property being used in money-laundering schemes and other criminal activities, and is part of a wider move towards increasing transparency in the real estate sector and beyond. The Government had intended that the new register would go live in 2021, but this appears to have been overtaken by events. So where are we now?
In the last 4 years the plans have progressed as follows:
- A call for evidence was issued in 2017. This asked for views on the design of the policy and for additional evidence on the possible impacts of the new regime.
- This was followed by a Written Ministerial Statement in 2018, confirming the Government's intention to legislate to introduce the new rules.
- The Government then responded in March 2018 to the feedback it had received on its 2017 consultation. This response set out how the Government planned to implement the register in the light of the responses to the call for evidence and other views gained through the wider consultation process, and outlined how the policy proposals had developed since April 2017.
- The Draft Registration of Overseas Entities Bill was published in July 2018 along with a further consultation on the terms of the Bill. The key questions centred around the types of overseas entities that might not have or be able to identify their beneficial owners or managing officers, the power to exempt entities from compliance, and the scope of any exceptions to the restriction and the prohibition placed on land.
- The Bill then underwent Pre-Legislative Scrutiny by a Joint Committee in Spring 2019.
- The Government’s response to the Committee’s report was published in July 2019. In this response, the Government accepted many of the Committee’s recommendations, such as ensuring that Companies House is given adequate resources to deal with additional filings under this register; introducing a reporting facility for inaccurate information on the register; and continuing to advance work on reforming the powers of Companies House to verify information.
- There was a further Written Ministerial Statement in July 2020, confirming that the register is included as one of the key measures of the UK’s Economic Crime Plan 2019-2022.
The most recent sign that the Government still intends to implement this new regime came in March 2021 when the UK Government published a delayed integrated review of security, defence, development and foreign policy, setting out in general terms the UK's approach to national security and international policy over the next five years. This review outlined the intention to expand this proposed legislation, as soon as time permits, and to reform Companies House registration. For further details, read our briefing The Integrated Review 2021: new UK sanctions and money laundering regimes to be introduced.
What were the main recommendations of the Parliamentary Joint Committee in July 2019?
- Ensure that trusts do not slip into any gaps between the new regime and the Fifth EU Anti-Money Laundering Directive.
- The percentage of ownership thresholds that the draft Bill uses to define beneficial ownership, as well as the definition of what it means to have “significant influence or control” over an entity, should reflect those used in the PSC framework.
- In relation to the power to exempt certain entities from the requirement to register, this should be reformed so that those entities (such as overseas governments) would still have to comply but would be given protection from public disclosure for the information. The Government should then publish, in an annual Written Statement, the number of occasions when such exemptions are used.
- The obligation to keep data up-to-date should not just entail a requirement to update information once a year, but also to notify about a proposed transaction before it takes place.
- The regime needs to encompass a workable verification mechanism whereby verification responsibilities could be delegated to Companies House or regulated professionals.
- Civil penalties may well be easier than criminal sanctions to enforce abroad, and against land or other assets in the UK. Furthermore, they could be backed up by criminal sanctions for non-payment.
Contractual controls register
In 2020 the Government launched a call for evidence regarding its proposals to increase transparency of contractual arrangements used to exercise control over the buying or selling of land, meaning conditional contracts, options and pre-emption agreements.
Unlike the proposed register of overseas entities, this new suggestion is not motivated by concerns about money-laundering or other criminal purposes. Instead the Government's stated goals are to improve the ability of local communities to play an informed role in the development of their neighbourhoods, to support the Government’s efforts to encourage more companies to enter the house building market, particularly smaller builders, to understand the prevalence of land-banking, and to improve the development process for both planners and developers.
The proposed new regime would involve the Government collecting additional data about contractual controls, other than those arising in relation to statutory options, testamentary options and rights of pre-emption, or options held by individuals relating to the purchase or lease of residential property for use as a domestic residence. It is only interested in long term conditional contracts that relate to the development of land.
The mechanism for enforcement would include changes to the land registration system so that it would no longer be possible to use a unilateral notice to protect options, pre-emptions or contracts, and it would only be possible to use agreed notices if the required data was supplied. There is also a proposal to limit the use of restrictions in the same way.
The consultation closed in November 2020 and the Government is currently analysing the feedback it received.
What sort of feedback did the consultation about contractual controls receive?
Amongst a range of concerns expressed in consultation responses, the following thoughts are believed to have been widespread:
- The contractual control data is too commercially sensitive to be open to the public and may mean that compliant developers lose their commercial edge over competitors without any tangible benefit to the community
- The new rules would increase costs and red tape for businesses
- There should be a de minimis extent of land ownership
- Options for the grant of a lease should be excluded
The response to the Coronavirus pandemic and the march towards net zero have dominated recent parliamentary time but it looks certain that the Government will continue to move ahead in increasing transparency around the ownership and control of land in the UK.