In this edition we look at registration in the new Register of Overseas Entities; two cases on pandemic-related rent arrears; a landmark High Court decision on defective cladding; and an imminent deadline for the registration of non-UK resident trusts.
When does an overseas entity need to register in the new Register of Overseas Entities?
Part 1 of the Economic Crime (Transparency and Enforcement) Act 2022 (the Act) establishes a new register of overseas entities (ROE) that own, or want to own, land in the UK. The ROE, which is maintained by Companies House, went “live” on August 1, 2022 and is now open to receive applications for registration.
In broad terms:
- Overseas entities that already own, or wish to own, a “qualifying estate” in land are required to be registered in the ROE. A “qualifying estate” is a freehold interest or a leasehold interest for a term of more than seven years.
- Registration in the ROE involves the overseas entity providing to Companies House information about itself and its registrable beneficial owners or its managing officers. This information must be updated annually. Additional information must be disclosed where a registrable beneficial owner is a trustee. The information required to be submitted must be independently verified.
- A failure to register or to comply with the requirement to update the ROE annually will mean that an overseas entity:
- cannot be registered at HM Land Registry as the legal owner of a qualifying estate; and
- where already registered as legal owner, cannot sell, charge or grant a lease of the land for a term of more than seven years as any buyer, chargee or lessee will not be able to register the disposition at the Land Registry.
- Compliance will be enforced through restrictions on the title registers of land owned by overseas entities. There will also be criminal sanctions for non-compliance with the requirements and for delivering misleading, false or deceptive statements or information to Companies House.
Land already owned by an overseas entity
- If the overseas entity was registered at the Land Registry as proprietor of a qualifying estate before January 1, 1999, the regime is not engaged and there is no need to register in the ROE in respect of that qualifying estate.
- If the overseas entity applied to the Land Registry to register as proprietor of a qualifying estate on or after January 1, 1999 but before August 1, 2022 there is a transitional period of six months (ending on January 31, 2023) during which the overseas entity is required to register in the ROE. (Note that where such an overseas entity acquires an additional qualifying estate before the end of the transitional period this will accelerate the requirement for it to register in the ROE - see below).
- An overseas entity that disposed of land on or after February 28, 2022 so that it is no longer the owner of a qualifying estate in the UK does not need to register in the ROE but will nevertheless need to deliver to Companies House (during the transitional period) details of the disposal and information about itself, its registrable beneficial owners or its managing officers as at the time immediately before the disposal.
Land being acquired by an overseas entity
- Overseas entities applying to the Land Registry to be registered as proprietor of a qualifying estate must be registered in the ROE at the time of the application and must include with the application the overseas entity identification number (OE ID) issued by Companies House as evidence of registration in the ROE.
- This is subject to a short concessionary period in that overseas entities applying to the Land Registry between August 1, 2022 and September 4, 2022 will not have to supply an OE ID to the Land Registry with the application (but will still need to apply for registration in the ROE and should supply the OE ID if they have it in time).
We understand that several independent company service providers have announced that they intend to provide registration and verification services for overseas entities. Companies House has stated in guidance that it will be quicker and easier for an application to register an overseas entity to be made by the same UK-regulated agent that carried out the verification checks on that overseas entity.
For further information, please see our Briefing on the topic.
COVID-19: tenants on a losing streak
In our July 2022 Focus we reported on the first arbitration case under the Commercial Rent (Coronavirus) Act 2022, which did not go well for the tenant.
Tenants will be equally dismayed by the Court of Appeal’s decision in Bank of New York Mellon (International) Ltd v Cine-UK Ltd and others [2022] EWCA Civ 1021 (see our May 2021 Focus), which was heard together with London Trocadero (2015) LLP v Picturehouse Cinemas Ltd and others (see our November 2021 Focus).
Both appeals raised the issue of whether the defendants, who were the tenants of the claimant landlords and who operated cinemas at the demised premises, were liable to pay rent for periods of time during the pandemic when, due to the Coronavirus Regulations, they could not lawfully operate their cinema businesses from the premises. The landlords in each case issued proceedings for the unpaid rent and at first instance were successful.
The tenants appealed on the grounds that:
- the Government restrictions imposed as a consequence of the pandemic caused a failure of consideration, relieving them of the obligation to pay rent for those periods. This was on the basis that the rent was for the use of the premises as a cinema, so that no rent was due in respect of periods when the premises could not be used as such;
- it was an implied term of the leases that the tenants should be relieved of its obligation to pay rent when they could not lawfully use the premises as a cinema; and
- (in the first case) the tenants were relieved from the obligation to pay rent by the rent cesser clause in their leases.
The Court of Appeal rejected all three arguments.
In relation to the first ground, the leases contained a carefully worked out contractual regime for the allocation of risk and the proposed “failure of consideration “ would subvert that regime and contradict the terms of the contracts. It was clear that the consideration for the obligation to pay rent was the demise of the premises, not that the premises could lawfully be used as a cinema.
As to the second ground, the starting point for implied terms was whether they were so obvious that they went without saying, or were necessary to give the leases business efficacy. In this case it could not be said that the implied term sought by the tenant was so obvious that it went without saying. In addition, the requirement to pay rent even though the premises could not be used for their intended purpose did not deprive the leases of business efficacy, or mean that they lacked commercial or practical coherence. It was a matter for negotiation between the parties as to where the risk should lie. The fact that, as matters stood, the risk was left with the tenant did not mean that the leases lacked commercial or practical coherence.
On the issue of the rent cesser clause, this was in a standard form, providing that rent would be suspended if premises were rendered unfit for occupation or use or inaccessible due to being "damaged or destroyed". The clause clearly only operated where there was physical damage or destruction to the property by an insured risk - this did not extend to financial or non-physical damage, nor could such a term be implied.
The decision has been described as “the death knell for the COVID defences”. Tenants who have been waiting for the outcome of the cases now have until September 23, 2022 if they wish to refer such a pandemic rent dispute to arbitration under the Commercial Rent (Coronavirus) Act 2022.
Defective cladding – landmark High Court decision
In Martlet Homes Ltd v Mulalley & Co Ltd [2022] EWHC 1813 (TCC), the High Court has handed down the first judgment since the Grenfell Tower disaster in 2017 on a claim concerning fire safety defects in cladding on a high rise building.
Following investigations carried out after the tragic Grenfell Tower fire, Martlet discovered fire safety defects in the external walls of five of its high-rise towers. The towers had been the subject of extensive refurbishment between 2005 and 2008 by the defendant design and build contractor (Mulalley) who had installed the StoTherm Classic external wall insulation (Sto) system on them.
The Sto system comprised combustible expanded polystyrene (EPS) insulation, fire breaks and an overcoat of render. Martlet’s investigations found that both the fire breaks and the EPS had been defectively installed and, having taken expert advice, Martlet decided to replace the Sto system with a non-combustible external wall insulation system (“the replacement scheme”). Martlet claimed from Mulalley the cost of the replacement scheme and the costs of providing a waking watch as a fire safety precaution until the towers had been made safe.
Mulalley denied liability. This was on the basis that the real cause and justification for the remedial works and the waking watch was Martlet’s realisation, triggered by the Grenfell Tower fire, of the risk posed by the fact that the Sto system did not meet the heightened fire safety standards which had come into force after the works had been completed and which were further heightened as a result of the Grenfell fire.
The judge considered the Building Regulations 2000 and 2010, BRE 135 (1988 and 2003 editions), Approved Document B (2002 and 2006 editions) and the BBA Certificates relating to the system (produced in 1995, 2007, 2012 and 2017).
The judge concluded that Martlet had succeeded in proving both the existence of the installation defects and a breach of specification. The judge also concluded that it was not sufficient for Mulalley to rely on the 1995 BBA certificate, which was the certificate in force at the time. The Sto system should not have been used in the absence of any evidence which showed that it met the performance standards in Annex A of BRE 135 (2003 edition).
Martlet is therefore entitled to recover damages by reference to the cost of the replacement scheme. The waking watch costs were also recoverable - they were not too remote and in any event were recoverable as a reasonable step taken in mitigation of the far greater loss which would have flowed from an evacuation of the towers.
This is a significant win not only for the claimant but for many UK building owners facing similar cladding issues. It will also have wider implications for the construction industry as a whole, as well as for the real estate and insurance sectors, as it offers much needed guidance on the court’s approach to numerous significant issues affecting the hundreds of cladding disputes ongoing in the UK today.
For further information please contact Partner Simon Ramsden or Counsel Amy Armitage who acted for the claimant in this case.
Deadline for the registration of non-UK resident trusts now imminent
A reminder that non-UK resident trusts which have acquired UK land after October 6, 2020 will need to register with the Trust Registration Service (TRS) by September 1, 2022 regardless of whether they are liable to pay any UK tax.
The TRS is a register of the beneficial ownership of express trusts and was introduced to provide greater transparency and counteract money laundering activity. Under the TRS, trustees need to disclose to HMRC the identities/names of all actual or potential beneficiaries.
HMRC has published a TRS manual setting out guidance on the registration process, the information required and the trusts which need to register. As originally introduced, the TRS only required registration of trusts which were liable to pay UK tax. The scope was extended from October 2020 to include UK and some non-UK trusts, regardless of whether they were liable to pay any UK tax. This is subject to an exclusion for certain types of trust and the new manual provides guidance and examples in respect of these excluded trusts.
Certain limited information on the beneficial ownership of trusts registered on the TRS may also be subject to third party access requests. The manual includes guidance on requests for access by third parties.
For further information please contact Tax partner Julia Lloyd.