Real Estate Development Yule Blog - 2 regimes to remember

"May your days be merry and bright" and may all your transactions be compliant!

The global instability resulting from Russia's military action in Ukraine has had many consequences for the UK real estate sector. In today's Yule Blog we're summarising two of these, both of which feature in an expanding regulatory regime of transparency to defeat the illegal use of funds, namely the expedited introduction of the register of overseas entities which own UK property, and the tightening of the sanctions regime against companies and individuals linked to Russia.

"He's making a list and checking it twice…"

Introduced somewhat swiftly in the first quarter of the year, the Economic Crime (Transparency and Enforcement) Act 2022 implemented a register of overseas entities requiring those who are looking to acquire real estate in the UK to register the details of the property-owning entity and its beneficial owners with Companies House. In doing so, the government intends to make it easier to identify the ultimate owner of the property, regardless of the identity of the legal owner of the title to it. The register opened for business on 1 August 2022 and those entities which (as at that date) already owned UK property have until 31 January 2023 to apply for registration at Companies House. The Land Registry estimate that over 30,000 overseas entities are already registered as the owners of UK property (namely freehold and registrable leasehold interests), but at the time of writing, the number of entities that have successfully registered at Companies House stands at just over 7,500. As such, there is still a long way to go, with only a few weeks before the registration deadline expires. Those entities which fail to comply with their statutory duty to register will be subject to criminal sanctions, including monetary fines and imprisonment for directors and other officers of the entity.

For those entities which are considering acquiring UK property interests, note that it will not be possible to submit an application to the Land Registry to register the acquisition until the overseas entity has registered at Companies House and received its overseas entity ID number.  Similarly, if you're engaged in a transaction with an overseas entity, note that their powers to deal with their property interests will be subject to restrictions on the title at the Land Registry which will require evidence of registration at Companies House before the property can be transferred.

Given the number of overseas entities that already own property in the UK and have yet to register at Companies House, anyone considering using an overseas entity to acquire property in the coming months should ensure that they have started the registration process as early as possible. For further details on the registration regime, please see our detailed briefing.

"All I want for Christmas is (an OFSI licence!)"

The sanctions regime maintains a list of "designated persons" connected with Russia whose assets have been frozen. If a person is on that list, a landlord cannot accept rent from that person (or from another on their behalf) without breaching the sanctions unless it first secures a licence from the Office of Financial Sanctions Implementation ("OFSI"). But the regime goes further than that…. it can prevent landlords from accepting rent from guarantors who are not themselves subject to the sanctions regime.

So you can see why an OFSI licence is hotter than a bag of chestnuts right now! They are only available on specific grounds. Fortunately, one of the grounds is "to enable the basic needs of a designated person to be met" and this incudes payment of rent, whether or not the designated person is an individual. Therefore, OFSI licences are available to accept payment of rent under a lease of commercial premises by a corporate tenant. However, the licence must be in place before the payment is made and the timescale to obtain one can vary. A breach of the regime can lead to civil or criminal liability, so landlords are advised to seek specific advice if they have any concerns that the sanctions regime may apply.

Real Estate Development Yule Blog

Links to the previous posts in our Yule Blog series are below – click here to subscribe to our blog for tomorrow's finale in our 2022 festive countdown.

• 3 construction gateways
• 4 failed deadlines
• 5 housing ministers
• 6 years for silence
• 7 storeys high...
• 8 jolly judgments?
• 9 keys to MEES
• 10 percent more
• 11 metre buildings
• 12 points to ponder 

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