The requirement for overseas entities to register or be registered on the ROE at Companies House, will impact their ability to sell, lend, charge or otherwise deal with UK land and property that is owned by, or where the intended owner is, an overseas entity.   

Unless an overseas entity is registered on the ROE, firms could face difficulties when registering new security or refinancing existing portfolios.  However, there are some simple steps that can be taken to help address those.

What is the ROE?

The ROE requires overseas entities that own land or property in the UK to declare their beneficial owners and/or managing officers. 

With effect from 5 September 2022, an overseas entity that wishes to buy, sell, lease, charge or transfer a “qualifying estate” must be registered on the ROE. Broadly speaking, a “qualifying estate” will capture most UK property or land transactions.

In addition to the requirement to register on the ROE, an overseas entity must update the register every 12 months from the point of registration. If this is not done, the entity will be treated as if it has not registered, until the breach is remedied.

HM Land Registry (HMLR) will not register a disposition of a qualifying estate unless the overseas entity has a valid overseas entity ID (OE ID) which the overseas entity will only get once registered on the ROE.  There will be a restriction on title that prevents dispositions - although there are certain exemptions – some of which assist lenders.

The impact on lending transactions

The requirement to register on the ROE will impact lending transactions because: 

• if a lender intends to take new security from an overseas entity and that entity does not have a valid OE ID, the restriction on title will prohibit the disposition and therefore prevent the registration of a legal charge (until an OE ID is provided) and the lender’s charge will take effect in equity only which will limit enforcement options.
• it could impact existing portfolios.  The regime applies to overseas entities which are already registered proprietors of qualifying estates and where security is already registered at HMLR. If the overseas entity has not registered on the ROE (or does not have an up-to-date OE ID) as required, this is likely to have an impact when refinancing/restructuring.
• if an overseas entity is not already registered, timing could also have an impact, particularly in a distressed scenario, given the requirement to send notice to beneficial owners (up to one month) and the time required to register.

The impact on enforcement of security

If a lender holds security over property or land owned by an overseas entity that has not completed the registration requirements at Companies House.  A lender can rely on its power of sale and sell as mortgagee in possession, or appoint receivers to dispose of the property, relying on the exemptions in the legislation. 

However, this exemption will only assist where the lender’s charge has been registered as a legal charge.

Lenders should check whether existing security has been properly registered at HMLR.  If it has not, this will create an issue if it becomes necessary to enforce.

What are the main takeaways?

To address concerns, lenders should audit existing portfolios, review new transactions, and consider lending documentation to determine:

• whether entities and dispositions are caught by the legislation
• whether adequate protections are included within contracts and lending documentation, for example:
• • making it a condition precedent to draw down that the overseas entity provides its OE ID
  • requiring covenants to ensure the overseas entity complies with its ongoing obligations to keep the register up to date.
• whether the restriction on title can be addressed if a particular transaction is caught i.e., by appointing a receiver.

For more information, please contact Rachael on rachael.markham@squirepb.com