All overseas entities owning UK property must supply their details to the Register of Overseas Entities by January 31 2023. Despite this looming deadline, less than 7% of overseas entities had lodged their applications, as at the end of October.
Joseph Patchitt, a lawyer in Ropes & Gray’s private equity real estate team, explains below why this might be the case and what property investors can do.
The clock is ticking, but it’s not too late. As real estate investors are getting to grips with how the Register of Overseas Entities (ROE) works in practice, they are starting to cut beneficial ownership analysis down to size. But there is still work to do.
The January 31 2023 deadline, by which all overseas entities owning UK land must have submitted details of their “Registrable Beneficial Owners” (RBOs) to Companies House, is now just two months away. Despite this cut-off looming, information released by Companies House has revealed that just 7% of overseas entities have lodged their applications as at the end of October.
This lack of engagement is certainly unexpected, given that penalties for non-compliance are severe, including potential criminal offences on the part of the relevant directors. However, it is not entirely surprising considering the potentially daunting task facing real estate investors to ensure compliance.
Not only do they need to get to grips with the detail of the Economic Crime (Transparency and Enforcement) Act 2022, which underpins the ROE, they must also then apply these rules to the often-complex ownership structures they use to hold their UK land investments including through funds, joint ventures and co-investments.
It is not all bad news. Anecdotally, we are hearing that with a proper understanding of how the ROE dovetails with existing reporting regimes, real estate investors are finding that the process isn’t as burdensome as they may have feared.
Intrinsic to this sentiment is the understanding that the ROE shouldn’t be viewed in isolation, but more as an extension of the “Persons with Significant Control” (PSC) regime into beneficial ownership of UK land. The PSC regime has required UK legal entities to register details of their beneficial ownership since 2016. This is important for two main reasons:
Much of the legislation for identifying an RBO under the ROE, mirrors that identifying PSCs under the PSC regime. This is significant because real estate investors can 'piggy-back' off much of their prior and ongoing PSC beneficial ownership analysis.
Where UK entities appear in the holding structure above an overseas entity owning UK land, real estate investors may be able to ‘plug-in’ to the PSC regime. Practically, this means that no further beneficial ownership analysis is required above the relevant UK entity in the holding structure. Equally, if there are entities in the holding structure listed on certain global exchanges, real estate investors can also ‘plug-in’ to the disclosure requirements within the listing rules/regimes to create a similar effect.
If there are no UK entities or other listed entities sitting above the relevant overseas entity, the summary effect of the ROE legislation is that the regime would only target individuals at the top of the ownership structure, which can significantly simplify the task of beneficial ownership analysis.
With a proper understanding of how the ROE fits into the wider legislative landscape, it is possible for many real estate investors to cut through the administrative burden of the ROE. But the clock is ticking. There is no time to waste.