The Economic Crime (Transparency and Enforcement) Act 2022 – property impacts
The march of regulatory burden never seems to stand still. We’ve known for a while now that, from 1 April 2022, certain categories of property owners (or tenants of long leases) in Scotland who do not make decisions about what happens to their land are required to enter the details of their decision-making associate in the new Register of Controlled Interests (RCI). The transition period between the introduction of the register and criminal sanctions being imposed is one year, so as of 1 April 2023, affected landowners or tenants will become liable for criminal sanctions for non-compliance with the RCI reporting requirements. The affected categories of owners/tenants includes partnerships, trusts and overseas companies.
A further reporting requirement has now arisen following the passing of the new Economic Crime (Transparency and Enforcement) Act 2022. Introduced as part of the UK government’s response to the war in Ukraine, the Act places a duty on overseas entities which acquired land in Scotland since 8 December 2014 (1 January 1999 in England and Wales) to identify their beneficial owners through the new Companies House Register of Overseas Entities (ROE).
Once the relevant provisions of the Act come into effect, there will be a 6 month transition period to register in the ROE. Failure to comply, as well as being a criminal offence, will prevent certain disposals of the property.
The ROE has in fact been long-anticipated. First announced in 2016, the SPF and BPF have engaged in consultation discussion with the UK government on the ROE periodically since then, though it is only recent events which have found it the parliamentary time to be progressed.
The potential for overlap between the ROE and RCI reporting requirements for overseas entities has long been recognised, and the Scottish government had previously committed to reviewing the RCI once the UK government finally introduced the ROE. The SPF is now reminding the Scottish government of its previous commitments in this respect, in the interests of reducing the regulatory burden on those who invest in Scotland.
The UK has also strengthened its sanctions regime, and this has potential impacts on those who own property in Scotland and the rest of the UK. Businesses will need a licence (which can take many weeks to be issued) to continue commercial relationships with companies owned or controlled by individuals subject to an asset freeze in the UK.
Businesses risk criminal penalties for non-compliance. This risk applies whether the business is a customer, supplier or service provider of, lender to, or otherwise transacting with, the businesses owned by sanctions targets.
This could impact the ability to receive rents and other aspects of commercial lease relationships, as well as supply chain such as managing agents or service providers.
It is important that property companies, like other businesses, do their due diligence to understand exactly who they are transacting with currently and screen who they might do business with in future, to check for sanctions risks.
