Our October 2022 summary of the latest developments in Property law and practice is as follows:

The Register of Overseas Entities under the Economic Crime (Transparency and Enforcement Act 2022) (‘EC(TAE)A’) commenced on 1 August 2022. Associated changes to the Land Registration Act 2002 (‘LRA’) came into force on 5 September 2022.

To ensure compliance, Schedule 3 EC(TAE)A introduced a new section 85A and Schedule 4A to LRA. Under Schedule 4A LRA, no application can be made to register an overseas entity as the proprietor of a “qualifying estate” unless the entity either (a) is registered at Companies House as a registered overseas entity with its Overseas Entity ID or (b) is an exempt overseas entity.

A “qualifying estate” is a freehold or leasehold estate granted for a term of more than 7 years from the date of the grant. A registered charge is not a qualifying estate. Therefore, if an overseas entity is taking charge over land, an Overseas Entity ID is not required for the overseas entity to register the charge.

Schedule 4A LRA requires the Land Registry to enter a restriction in the registered titles of overseas entities. The Land Registry will enter a restriction in two circumstances: First, if an overseas entity becomes a registered proprietor of a qualifying estate. The restriction shall have immediate effect on the registration of an overseas as proprietor. Second, on existing titles owned. In such circumstances, the overseas entity must make an application to be registered before the end of the six-month transitional period applied to existing overseas owners of land. The restriction then takes effect.

Overseas entities who are entitled to be registered but who have not should take care when exercising powers under section 23 LRA (e.g. transferring, leasing, or charging the land). Where an overseas entity is not yet the registered proprietor but became required to register under Schedule 4A, any exercise of its powers will be restricted and must not be registered unless one of the circumstances of Schedule 4A (3(2)(a) to (f) apply. These are that:

1. The entity is a registered overseas entity, or an exempt overseas entity at the time of the disposition;
2. The disposition is made pursuant to a statutory obligation, court order or is made by operation of law;
3. The disposition is made pursuant to a contract entered into before the restriction was entered in the register;
4. The disposition is made under a power of sale or by an insolvency practitioner; or
5. Consent of the Secretary of State is obtained.
6. The disposition is made by a specified insolvency practitioner in specified circumstances, which are defined as circumstances specified in regulations made by the Secretary of State for the purposes of that paragraph.

Companies will need to ensure they obtain an Overseas Entity ID where applicable. The Law Society has provided guidance on how to, pointing out the verification and registration process with Companies House is unlikely to involve real estate lawyers.

While the period has expired, the procedural requirements of the Act still influence how arbitration must be carried out. Any reference to arbitration needs to include a formal proposal for resolving the matter of relief from payment, supported by evidence. Before a party can refer the dispute to arbitration, it must notify the other party of its intention. If the other party submits a response within 14 days, arbitration cannot be referenced before the end of a period of 14 days after the day on which the response was received. If no response was received, then a reference to arbitration cannot be made before the end of the period of 28 days, beginning with the day on which the intention was first given.

The amendments will mean that many express trusts will fall within the scope of registration at HM Revenue Customs’ Trust Registration Services, including real estate.

The Trust Registration Service is a register of express trusts which are liable to pay UK tax. It contains details about the trust, the settlor, the trustees and beneficiaries. A trust must be registered with HMRC if it becomes liable to UK tax, such as SDLT or LTT.

Since 1^st September 2022, all express trusts must be registered with HMRC even if they have no tax liability, unless they are specifically excluded. Schedule 3A of The Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (as amended by The Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020 (SI 2020/991)) sets out that an excluded trust includes:

1. trusts of jointly held property where the trustees and beneficiaries are the same persons. This does not apply where the persons are not the same or where a partner(s) holds the property on behalf of a partnership.
2. a trust imposed or required by enactment. For example, a trust arising where land is transferred to more than four persons and is therefore automatically held on trust for them.
3. trusts imposed by court order.
4. a trust created for the purpose of holding client money.
5. A trust created for the purpose of (i) enabling or facilitating a transaction effected for genuine commercial reasons or (ii) protecting or enforcing rights related to such a transaction.
6. A trust created on the transfer or disposal of an asset where the purpose of the trust is to hold the legal title to the asset on trust until such time as required by law. For example, a trust arising during the registration gap between completion and registration of a registration of a registered land transfer.

However, a trust that is otherwise excluded from registration is nevertheless required to register if it has a liability to UK taxation.