In this edition we look at the register of overseas entities in practice; higher energy efficiency standards in the commercial PRS; ‘Accountable Persons’ under the Building Safety Act regime; and green leases.
Register of Overseas Entities: a practical update
The new register of overseas entities (ROE) established under Part 1 of the Economic Crime (Transparency and Enforcement) Act 2022 is up and running.
Overseas entities (OEs) who own, or want to own, land in the UK need to be aware of the new regime and its requirements as the consequences of non-compliance are severe. The same applies to third parties that are considering entering into certain land transactions with an OE.
In practical terms, what needs to be done now?
OEs already owning land
- OEs who were registered (or had applied to register) at the Land Registry as owner of a “qualifying estate” before August 1, 2022 (when the new regime came into force) must apply to Companies House to be registered in the ROE before January 31, 2023.
- A “qualifying estate” is a freehold interest or a leasehold interest for a term of more than seven years from the date of the grant.
- The one exception to this is where the OE was registered at the Land Registry as owner of a qualifying estate further to an application made before January 1, 1999: in that case there is no need to register in the ROE in respect of that estate.
- Details of certain dispositions made by an OE since February 28, 2022 must also be submitted to Companies House by January 31, 2023.These are: a transfer of land, the grant of a lease for a term of more than seven years and the grant of a legal charge over land. This is the case even if the OE no longer owns land as a result of the disposition.
OEs that want to acquire land
- OEs 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.
- The application to the Land Registry will be rejected unless it includes the OE identification number issued by Companies House as evidence of registration in the ROE.
Dispositions of land by OEs
- OEs that want to transfer land or grant a charge over it or a lease for a term of more than seven years must be registered in the ROE at the time of the disposition.
- If it is not, then with some limited exceptions, the disposition cannot be registered at the Land Registry.
- This has serious consequences not just for the OE itself but also sellers, buyers, landlords, tenants and lenders who are counterparties with an OE, as it is registration at the Land Registry that confers legal title on them.
Compliance with the requirements will be enforced through restrictions on the title registers of land owned by OEs. There will also be criminal and hefty financial sanctions for non-compliance and for delivering misleading, false or deceptive statements or information to Companies House.
Looking ahead, it should also be noted that compliance entails not just registering in the ROE but also updating the submitted information annually.
The ROE registration process
In summary this involves establishing whether the actual or proposed owner of a qualifying estate is an OE. If it is:
- Taking reasonable steps to identify the OE’s “registrable beneficial owners” or, if none, its managing officers.
- Collecting prescribed “required information” about the OE and its registrable beneficial owners/managing officers following a prescribed process.
- Verification of that required information by an independent “relevant person”.
- Applying to Companies House for registration, the application to include the required information and prescribed statements. Additional information must be disclosed where a registrable beneficial owner is a trustee; and
- Updating the submitted information and statements annually.
Several independent company service providers have registered with Companies House to provide registration and verification services for OEs. Where registration is necessary, it is recommended that OEs start the process immediately, particularly as it may take some time to collate the necessary information.
As to applications to Companies House for registration in the ROE, we understand that these are currently being processed in a matter of days. However this may well get longer as the January 31 deadline approaches – a quick glance at the ROE indicates that, as at the time of writing, 639 OEs have been registered there. We have been told that, as of a few weeks ago, 31,506 OEs were registered at the Land Registry as landowners!
Higher energy efficiency standards in the commercial PRS - the clock is ticking
A reminder that, in just over six months, minimum energy efficiency standards (MEES) requirements for landlords of commercial premises in the private rented sector (PRS) will be extended.
MEES for landlords in the PRS have been in force since April 1, 2018. These provide that, with some exclusions and exemptions, a landlord cannot grant a new – or renew an existing – tenancy of a property if it does not have an EPC rating of E or higher.
Since April 1, 2020 private sector residential landlords have not been able to continue to let a property unless it has an EPC rating of E or higher. This requirement will also apply to landlords of commercial premises from April 1, 2023.
According to research carried out by the Estates Gazette “almost £2.5bn of rental income is under threat if owners of commercial real estate that is not up to scratch fail to boost their EPC ratings above an E ahead of next year’s deadline……. [research] shows that some 120m sq ft of commercial real estate – the equivalent to 199 Shards – across England will have failing EPCs in 2023.”
Landlords of commercial premises would therefore be well advised to scrutinise their letting portfolios to identify properties that don’t meet the minimum EPC E rating and to take immediate action where necessary to achieve that standard by the April 2023 deadline.
Landlords that are compliant cannot rest on their laurels as the Government wants to raise the energy efficiency bar still further. It consulted in 2021 on a framework for a minimum EPC B rating for privately rented non-domestic buildings in England and Wales by 2030. A phased implementation is proposed, with the introduction of two ‘compliance windows, starting in 2025 - 2027. Responses to the consultation, which has closed, are currently being analysed.
The new Building Safety Act regime: who is the ‘Accountable Person’ and what must it do?
The Building Safety Act 2022 (BSA) creates several new duty holder roles in respect of fire and structural safety within higher-risk buildings (HRBs, as defined in the BSA) throughout the design, build and occupation of such HRBs.
The sole duty holder role in respect of occupied HRBs is the “Accountable Person”. An Accountable Person will essentially be any entity with ultimate responsibility for repairing any of the common parts of an occupied HRB. Accountable Persons will have a set of statutory obligations that they must comply with, aimed at ensuring that the fire and structural risks associated with any HRB are appropriately controlled and managed.
The “Accountable Person” is, in practical terms, any landlord or freeholder in charge of repairing either part or all of the common parts of any HRB. It will also be possible for a management company that does not hold any legal estate in a HRB but has repairing responsibilities to be an Accountable Person.
The duties being placed upon Accountable Person(s) are timetabled to be introduced within 12 to 18 months following the BSA coming into force. As such, this should be by the end of 2023.
Once in force, the Building Safety Regulator will be able to either serve a compliance notice or, in more extreme situations, charge an Accountable Person with the offence of giving rise to risk of death and serious injury where breaches of its obligations are identified.
In light of the myriad of duties and responsibilities that will be placed on the Accountable Person(s), the novel concepts involved and the enforcement powers given to the Regulator, it is imperative that freeholders, landlords and management companies obtain advice in respect of what they must do to comply with their obligations and how they can implement systems and procedures to manage the transition effectively.
For further guidance on the topic please contact Caroline May or Andrew Swarbrick and see our detailed briefing: The new Building Safety Act regime: who is the ‘Accountable Person’ and what must it do?