Property Week’s report on Who Owns London revealed some interesting insights earlier this year and now the Department for Business, Energy & Industrial Strategy has launched a consultation on a Beneficial Ownership Register to increase the transparency of overseas investment in property.
This proposed register will require overseas entities to publically disclose their beneficial ownership structure.
The proposals set out significant penalties for non-compliance with the registration requirements; entities face bans from dealing with UK property and possible criminal sanctions.
Finding the balance to strengthen the reputation and transparency of the UK property market, while avoiding a significant loss of overseas investment, is the government’s aim.
However before possible implementation, further consideration needs to be given in a few key areas.
Is there an impact on insolvency sales?
The proposals would prohibit a non-compliant overseas entity from all property dealings, including sales. While the proposals consider a carve-out, to allow lenders to exercise their power of sale, more consideration needs to be given to sales by insolvency practitioners / receivers.
Insolvency practitioners enter into sale agreements as agents for the seller in order to realise returns for creditors. A point we have raised in the consultation process is that there should be an exemption to allow sales by insolvency practitioners / receivers to be completed despite any failure by the selling entity to comply with its beneficial ownership registration requirements.
Does the transition period cause concern?
A one year transition period is proposed to allow non-compliant entities to either comply or sell. After this, transactions will not be registered at the Land Registry if either party remains non-compliant. A scenario could therefore be envisaged whereby an innocent buyer enters into a conditional purchase agreement pre-establishment of the register but with a completion date after the expiry of the proposed transition period. If the seller had not complied with the register requirements at that time, the innocent buyer would, under the current proposals, be unable to register the transaction.
Does the register require too much information?
In addition to details of the beneficial owner’s name, nationality, country of residence and address for service, the beneficial owner is also required to supply their usual residential address.
Although this residential address would not appear on the publically accessible parts of the register (and indeed an individual could apply for the information to be suppressed entirely if there are legitimate safety or security concerns), the requirement to provide it is likely to cause alarm and goes beyond the requirements for UK entities.
While acknowledging the government’s desire for full transparency, is the requirement of residential addresses a step too far? The name, country of residence and address for service could be considered sufficient to achieve transparency and identify the beneficial owner.
The on-going consultation process
The desire to ensure the UK property market is both transparent and attractive for international investors is admirable.
The implementation of a Beneficial Ownership Register is a sensible and proportionate step along this path. However there are a few points that need to be addressed before the proposals are implemented.