Real Estate Blog: The Economic Crime (Transparency and Enforcement) Act 2022 (‘the Act’) Part 4
Part 4 of 4 – The consequences for real estate transactions
Transactions that will not be caught
- Licences to occupy.
- Leases of less than seven years (potentially including subsequent leases to the same tenant)
- Loans by an overseas lender (unless the overseas lender subsequently becomes the owner of a qualifying estate, at which point registration would be required).
- Contracts for dispositions made before the restriction is entered.
- Some dispositions by mortgagees, receivers, or insolvency practitioners (in circumstances to be prescribed in the regulations made by the Secretary of State).
Impact on real estate due diligence
- Enquiries of the registration status of an overseas entity under this Act will become essential.
- We will see increased due diligence undertaken on transactions that involve the overseas entities, whether as the seller/landlord, the buyer/tenant, or the borrower.
- Buyers/tenants will need to ensure they are receiving legal title, sellers will want to ensure they have both legal and marketable title and can satisfy the arguably burdensome restriction on the title imposed by HM Land Registry and lenders will want to ensure they can take a legal charge over qualifying property.
Impact on transaction timetables and drafting
- Because dispositions are permitted without the overseas entity being registered where the agreement for sale/lease to which the transfer or lease grant was subject was entered into before the restriction is entered into the title register we are likely to see increased pressure to exchange before the end of the transitional period.
- For all transactions involving overseas entities, it’s worth adding contractual provisions to ensure the overseas entity will comply with the Act.
- For example, when buying property owned by an overseas entity, it may be prudent to include protective terms in the contract such as making the sale conditional on the seller having legal title and providing details of its overseas entity ID.
- Sales to overseas entities will need to be conditional on registration to ensure the seller isn’t left holding the legal title on trust for the buyer.
- Landlords to overseas entity tenants will want to ensure the tenant is registered, so that the lease is registered at HM Land Registry and takes effect in law, rather than just in equity.
- The implications of non-compliance are quite significant, so any transactions involving overseas entities will need to be carefully considered.
Other hints and tips:
- Get ahead on compliance matters – there are likely to be considerable backlogs once the register is set up
- Consider who will deal with the registration and reporting on behalf of the overseas entity. Will this be done in house or by a specialist company, an accountant, or a lawyer? Remember that an omission of registration would amount to a criminal offence being committed by the entity and any officers in default, punishable by up to five years imprisonment, or a fine, or both, so a detailed administrative exercise will be required to obtain all relevant information.
If you would like any further information in relation to anything covered in this Real Estate Blog, please do not hesitate to contact Alice Dockar, Aamir Hussain or Lucy Johnson. If you missed any of the other blogs in this series, please find them here:
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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