Tenants: ECTEA deadline approaches

As reported in our earlier post, the Register of Overseas Entities (ROE) came into force in the UK on 1 August 2022 through the new Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA).

Existing owners

Overseas entities that are the registered proprietor of a “qualifying estate” (or who have disposed of qualifying estates after 28 February 2022) must register with Companies House and provide verified evidence of their registrable beneficial owners / managing officers by 31 January 2023, or risk committing a criminal offence.

Qualifying estates are (i) a freehold estate, or (ii) a lease granted for a term of more than seven years from the date of grant, in either case pursuant to an application made on or after 1 January 1999.

From and including 1 February 2023, the general rule is that (subject to certain exemptions) no specified disposition (i.e. a transfer, grant of a lease for more than seven years from date of grant, or the grant of a legal charge) by an overseas entity can be registered unless the ROE registration process was complete at the time of the relevant disposition.

New acquisitions by overseas entities

From and including 5 September 2022, overseas entities must have completed the registration process with Companies House and obtained an overseas entity ID number before they can apply to HM Land Registry to become the registered proprietor of a qualifying estate. 

Failure to complete the registration will delay registration at the Land Registry and, as legal title does not pass until registration at the Land Registry has been completed, could result in the disposition taking effect only in equity.  This should be a concern because only the party holding legal title can exercise key legal rights (e.g. serving a break notice under a lease) and the tenant’s interest could be vulnerable in the event of Landlord insolvency.

Tenants that are overseas entities

Overseas entities looking to take a new lease should endeavour to ensure they are ROE registered by the proposed completion date (even if prior to 31 January 2023 deadline) in order to avoid a delay to their applications for registration.  Tenants of existing leases for a term of more than 7 years from the date of grant are required to register before the 31 January 2023 deadline, whether or not they intend to enter into a disposition of that interest.

Owing to the extent of information required and the need for verification prior to making an application to Companies House, it is advisable to start compiling the relevant information as soon as possible.

Tenants taking a lease from an overseas entity

A tenant taking a new lease from an overseas entity landlord should ensure there are contractual provisions in place which ensure that there is a positive duty on the landlord to register and to avoid lease completion taking place before the Landlord’s ROE registration has been finalised. Failure to include those provisions could result in the tenant being unable to be registered as legal owner of its leasehold interest.