Monday, March 26, 2018

New Register for Overseas Companies Owning UK Property or Bidding for UK Government Contracts

The UK government is to establish a register to show the true beneficial ownership of overseas companies that own, or propose to own, UK property in order to bolster the reputation and integrity of the UK property market. The register will be the first of its kind in the world and will require overseas companies that own or buy property in the UK, or who wish to participate in UK government procurement, to provide details of their ultimate owners.

Generally speaking, these include shareholders with more than 25% of the shares or voting rights in a corporate entity; or individuals, such as directors or managers, who otherwise exercise significant influence or control over the entity.

The UK has already taken major steps to increase corporate transparency, with the introduction of the “people with significant control” (PSC) register, a public register of those who control UK companies. Now UK property is being brought into play in the battle against money laundering. It is hoped that the register will minimise opportunities for criminals to use anonymous shell companies to launder criminal proceeds via UK properties, and will make it easier for law enforcement agencies to track illegal funds.

The new register will apply to both existing and future property ownership, and to freehold and leasehold properties of more than 21 years. Overseas entities that have not been registered will not be able to charge or grant, let alone buy or sell, a long lease of UK property. Entities that already own UK property when the legislation comes into effect will be given a year to comply with its requirements, or to sell if they do not want to do so. At the end of the year, any such entities will be prevented from selling their property or from creating a long lease or charge if they have not registered, and a restriction will be put on the title accordingly.

Further, overseas entities which have not provided information about their beneficial owners to the UK’s Companies House will not be able to bid for UK government contracts. Bids for UK government contracts by overseas entities which fail to include information on the bidder’s beneficial ownership will be excluded and, if received, will be rejected as incomplete or non-compliant.

The proposals are also intended to apply across the UK, in England, Scotland, Wales and Northern Ireland. While Scotland has set forth similar proposals separately, the UK government indicates that it will work with the devolved administrations as the proposals develop.

The new register will be held by Companies House. Once registered, overseas entities will be given a registration number. The Land Registry will not register the title of an overseas company without a valid registration number. Anyone will be able to check the register free of charge.

The government has committed to publishing a draft bill this summer and introducing it in Parliament by next summer.

This will be a significant consideration for overseas companies investing in UK property or bidding for UK government contracts, so that the registration process does not end up causing delay, or preventing a purchase from being registered. Evidence of registration will need to be sought early on, and before the exchange of contracts.