Insight Service: Regulatory and compliance

Economic Crime (Transparency and Enforcement) Act 2022: Key Points to Note in January 2023

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Emma Cordiner provides a timely reminder that the transitional period on the Economic Crime (Transparency and Enforcement) Act 2023 is about to expire. With just days until the deadline, Emma recaps on what the legislation requires.

Economic Crime (Transparency and Enforcement) Act 2022: Key Points to Note in January 2023

As part of the government’s bid to make UK property ownership more transparent, the Economic Crime (Transparency and Enforcement) Act 2022, or “ECTEA”, was enacted in March 2022 and largely came into effect on 1 August 2022, with practical application to real estate transactions with effect from 5 September 2022.
At this point in time, late January 2023, the transitional period applicable to many key provisions of ECTEA is just about to expire. Here, we will briefly recap the requirements for overseas entities owning UK property as at 31 January 2023, and take a look at some key points that any entity owning, or seeking to own property in the UK (note, this overview deals with application in England and Wales), now needs to be mindful of – whether they are an overseas entity or a party looking to transact with an overseas entity.

What did ECTEA do?

ECTEA introduced a new register of overseas entities at Companies House on 1 August 2022. The impact of this is significant, and also retrospective.

ECTEA’s definition of overseas entity is broad and as it stands, no regulations have been made so as to identify any exempt overseas entities (although there is scope for this). For now, it should be assumed that ECTEA applies to any overseas law-governed corporate body, partnership, or other entity which is not a “natural person” (and so we have not further referenced the concept of exempt overseas for the purposes of this note).

Any overseas entity acquiring a freehold interest in property or a lease for a term of more than seven years (a “qualifying estate”), must have registered the details of its beneficial ownership on the new register at Companies House. If it has not, it will not be able to apply to register its interest at the Land Registry – this means it will not ultimately be able to acquire legal title to the property.

ECTEA is retrospective too in that it requires any overseas entity which acquired a qualifying estate on or after 1 January 1999 to 31 July 2022 to register details of its beneficial ownership on the Companies House register during ECTEA’s transitional period – this period expires on 31 January 2023. Failure to comply means that the entity won’t be able to transfer the property, or grant a legal charge over it, or a lease of it for more than seven years. Moreover, the entity and its officers will have committed a criminal offence.

Registration of beneficial ownership details is not the end of the matter: details must be up to date – ECTEA imposes annual updating obligations on overseas entities, although updating periods can be shortened (which may prove useful if seeking to contractually oblige a party to a transaction to update its beneficial ownership details ahead of a key transaction dates such as exchange or completion). Failure to comply with updating duties is a criminal offence.

Property transactions: the questions to ask and expect going forward

When their prospective buyers and tenants of qualifying estates are overseas entities, sellers and landlords need to know that these entities are registered on the Companies House register, have an ID number and that they have complied with their updating duties so as to be satisfied that they will be able to become the registered proprietor of property. This is important for sellers looking to dispose of property and the liabilities that come with property ownership, and important for landlords who need to be certain that their tenants are “tenants at law” and capable, for example, of receiving certain notices which may be served under a lease: break notices, 1954 Act notices and the like. Buyers and tenants will likewise want to make the same checks in respect of overseas entity seller and landlords to make sure that they can actually dispose of property being purchased. Lenders taking legal charges over property owned, or to be acquired by overseas entities will need to make such checks of their overseas entity borrowers. All of these checks will become standardised within due diligence processes as ECTEA embeds.

Parties dealing with overseas entities should look for contractual protection in transfer and lease documentation: indemnity-backed obligations on overseas entities to be and to remain appropriately registered and otherwise ECTEA-compliant, and to properly submit (where relevant) all requisite information as part of any Land Registry applications flowing from property transactions. Lenders will need to impose, and borrowers should expect to have to satisfy and comply with, appropriate conditions-precedent and loan covenants, dealing with borrowers’ overseas entity register registration, and the updating of beneficial ownership details.

How ECTEA is imposed in practice

What will make ECTEA bite in practical transactional terms? The Land Registry will place a restriction on the title of every qualifying estate where it is satisfied that an overseas entity is the registered proprietor, and that it became so pursuant to an application made (to the Land Registry) on or after 1 January 1999 and before 1 August 2022. The restriction will have the effect of prohibiting the future registration of transfers, leases for a term of more than seven years, and the grant of legal charges, unless at the time of the disposition, the overseas entity:

  • is registered and has complied with its updating obligations; or
  • is exempt (albeit as above, there are not yet any exempt overseas entities identified); or
  • a statutory exemption applies to the disposition. The statutory exemptions are dispositions:
    • made by operation of law or, pursuant to a court order or a statutory obligations;
    • made pursuant to a contract pre-dating the entry of the restriction on to the register;
    • made pursuant to the exercise of a registered chargee’s power of sale or a receiver appointed by such chargee;
    • to which the Secretary of State consents – note, this power is narrow, dealing with disponees that could not have known about the prohibition on a disposition, and further regulations may yet be made; or
    • made by a “specified insolvency practitioner” – this definition has not yet been legislate for.

The restriction entered on to the register will take effect on expiry of ECTEA’s transition period i.e. 31 January 2023.

For overseas entities seeking now to become the registered proprietor of qualifying estates, they won’t be able to apply to the Land Registry to register their property interest, without having complied with ECTEA and having provided the relevant information within their application to the Land Registry. As above with existing qualifying estates, a restriction (taking immediate effect) will be placed on the title to the property prohibiting the registration of transfers, leases of more than seven years, and the grant of legal charges.

ECTEA makes it a criminal offence for an overseas entity (and every officer in default) to make a registerable disposition which cannot be registered, whether because the restriction on title cannot be complied with, or because the overseas entity has not complied with the applicable overseas entity registration rules.

Final thoughts

Given that the thrust of ECTEA is transparency of property ownership, even if as at 31 January 2023 a particular overseas entity is no longer the registered proprietor of a qualifying estate, it may still need to provide information to Companies House in respect of relevant dispositions of property between 28 February 2022 and 31 January 2023 and its beneficial ownership at that time. Again, there are criminal sanctions for non-compliance.

On a practical level, ECTEA raises additional due diligence points as above for parties to property transactions and those advising them. There will also be extra considerations around the mechanics of certain transactions – overseas entity sellers, landlords and mortgagors/borrowers need to be registered/compliant at the time of a disposition. Buyers, tenants and mortgagees need to be registered/compliant at the time of application to register the disposition at the Land Registry. In some cases a party will wear more than one hat – one simple example is the overseas entity mortgage-funded buyer – it’s not until it makes its Land Registry application to register its newly-acquired property that it needs to be on the overseas registered for ECTEA purposes – but it can’t buy the property without the mortgage and it can’t grant the necessary legal charge over the property unless it is registered/compliant with ECTEA at the point in time where it grants the legal charge. The transfer and registration mechanics of multi-party transactions will also warrant additional attention for example, a sub-sale of property where the intermediate party is an overseas entity.

Note, where property is being transferred by way of share sale, whilst Land Registry mechanics will not come into play, questions around an overseas entity target’s registration status will be just as pertinent from a legal compliance perspective, as they will be if a legal charge is being granted as part of the wider transaction.

Where there are overseas entities as parties to transactions, heads of terms might now usefully make reference to evidence of overseas entity registration to get this point in hand early on at a commercial level, as well as appropriate broader reference to contractual provisions to deal with the point.

ECTEA has the potential to be hugely consequential for non-compliant overseas entities and their officers, with the threat of both criminal sanctions the scope to prevent dealings with, or raising capital against property. Therefore, where businesses are transacting UK property using overseas entities, or where such entities are otherwise a party to such transactions, ECTEA requires careful attention to be paid to any overseas entity’s registration status, and in turn its ability to dispose of or register its interest in property, as the case may be.

The Queen’s Speech May 2021 – Legal Update

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This year’s Queen’s Speech contained several points that are relevant to our clients and the sectors we operate in. We have pulled together a list of the relevant legislative proposals, some of which were already known about, or carried over from the previous parliamentary session. We will continue to monitor the progress of these and provide timely updates.

ADVANCED RESEARCH AND INVENTION AGENCY BILL

This Bill is about developing the Life Sciences sector so it attracts people and business from across the world. This includes increasing public expenditure on research and development to £22 billion and creating an Advanced Research and Invention Agency which will be focused on funding high-risk, high-reward research and development.

PLANNING REFORM

Reforming planning laws and improving building safety were central to the Queen’s Speech. The change in planning laws to increase the number of new houses being built was announced proposals for areas which will be designated for growth, protection or regeneration, with developments in growth areas being harder for local opponents to block. The speech also made reference to the ongoing overhaul of the Building Regulations system in the UK with The Building Safety Bill still going through parliament.

PRODUCT SECURITY AND TELECOMMUNICATIONS INFRASTRUCTURE BILL

This is designed to ensure that smart consumer products, including smartphones and televisions, are more secure against cyber-attacks, protecting individual privacy and security. It also includes a commitment to the roll out of 5G mobile data coverage and gigabit-capable broadband to support better telecommunications coverage and connectivity.

TELECOMMUNICATIONS (SECURITY) BILL

This will give the Government new powers designed to ensure the long-term security and resilience of the UK’s telecoms networks and infrastructure and minimising the threat of high-risk vendors. It will also strengthen the security and oversight of technology used in telecoms networks including the electronic equipment and software used across the network which handle internet traffic and telephone calls.

ONLINE SAFETY BILL

The Online Safety Bill has been highly publicised and aims ‘to make the UK the safest place in the world to be online’, improving protections for users, especially children, whilst protecting freedom of expression, making companies responsible for their users’ safety online, and supporting a thriving and fast-growing digital sector. This will likely mean working with the industry to ensure there are clear legal definitions of what constitutes harmful online content, setting out the responsibilities that companies of different sizes have to observe and establishing clear codes of practice.

Arbitration – Why have an Arbitration clause in your commercial contract?

Agreement

In recent months, we have written about using mediation and adjudication as dispute resolution tools. But let’s look at another option open to you, when you engage in your commercial contracts.

Below we consider Arbitration, and what benefits it might have for you in resolving conflicts arising from your commercial contracts instead of using Court proceedings.

First, unless a party has agreed to arbitrate you cannot force them to do so. It is a private binding form of dispute resolution conducted before an impartial Arbitration body.

So why have an Arbitration clause in your commercial contracts to resolve disputes?

Well, litigation in England is a public proceeding before a Judge or Tribunal. It is not just public if the dispute eventually goes to trial. For example, many publications/journalists keep a watching brief at the High Court in London in respect of any Court claim issued. They can obtain copies of the pleadings (the Particulars of Claim, Defence and Reply) and often their attachments filed in any Court proceedings on payment of a small fee. This is without obtaining the Court’s permission to do so and without notice being given to any of the parties.

Arbitration is however private and confidential (unless you need to enforce an Arbitration award but even then the minutiae of your dispute is likely to remain confidential). Using Arbitration, it is easier for the parties to avoid damaging publicity and to preserve sensitive commercial information from entering into the public domain.

It also gives the parties greater variety and flexibility in how they resolve any dispute. The parties are free to choose their own tribunal – usually one or three arbitrators from one of the leading Arbitration bodies such as the International Chamber of Commerce (ICC), London Court of International Arbitration (LCIA) or The International Centre for Dispute Resolution (ICDR). That provides focused expertise (factual and/or legal) and you get one panel dealing with all aspects of an Arbitration from the start to end of the process.

Arbitration rules are flexible and streamlined and parties are not bound by national Court rules. Flexibility extends to the choice of law, venue for and language of resolving the dispute. So if your counterparty is based abroad and not keen on English law or the English Courts dealing with any dispute, you could as a compromise suggest that your contract have an Arbitration clause stating, say, that any dispute between the parties, be governed by English law but heard in Geneva[or any other locality you and they agree on], will be resolved pursuant to the ICC Rules with three arbitrators and the language of the Arbitration will be English. That gets around a party not wanting to submit to the jurisdiction of the other party’s local/national court.

The parties are also given autonomy to shape the form and scale of the Arbitration. Arbitrators can be selected by the parties for their familiarity with commercial and trade matters and may not necessarily be lawyers (although at least one on a three member Arbitration panel is likely to be). That circumvents the problem in some jurisdictions of judges not having relevant experience of a particular area.

As a client, you can be represented by lawyers and/or technical experts at an Arbitration hearing and not just limited legal advocates having particular rights of audience in a particular jurisdiction.

An Arbitration award is normally final and binding. The grounds for challenging an award are limited. As such, an appeal of an Arbitration award is difficult and it potentially cuts down on years and years of litigation to different appellant courts.

In some countries, the national courts are over‐burdened and it can take up to 10 years for a matter to come to trial. Arbitrating a substantial dispute usually takes 14-18 months to get to a final hearing. So whilst roughly on a par with the current length of English High Court proceedings getting to trial, the speed of Arbitration can be an advantage when compared to litigating in some jurisdictions.

The New York Convention provides for the enforcement of Arbitration awards. As of March 2021, 168 countries are a party to it and agree to enforce Arbitration awards made in other countries in their country. So Arbitration awards are more widely and readily enforced than Court judgments.

In our experience, the major disadvantage of Arbitration is its cost. Each of the Arbitrators needs to be paid on a hourly rate basis plus the administrative expenses of the Arbitration body setting up the Arbitration and the hiring of a venue for hearings. This is usually opposed to a one off Court fee or relatively low Court fees paid during a Court action (up to and including a trial) and no Court venue charges.

It is also not particularly workable where you want to join third parties into disputes where your relationship with that third party is not governed by Arbitration or you have agreed to arbitrate with that third party using a different Arbitration body/clause to the one in which the primary claim against you is being made.

Arbitration will not be right for every commercial agreement and should be considered on a case by case basis. In respect of high value contracts with international elements (either in respect of one or both parties or the subject matter), it will be worth detailed consideration.

If you would like more advice on whether you should consider having an Arbitration clause in your contract, and the form of it, please contact Ian Timlin whose details are below.

HOW CAN CONEXUS LAW HELP?

For further advice on adjudication, please contact Ian Timlin via his contact details below. Ian has been a CEDR accredited mediator since 2000.

Ian Timlin
Main: +44 (0)20 7390 0280
Mobile: +44 (0)77 6742 7332
[email protected]

Adjudication – Be Ready

Organisations in the construction sector are being warned to expect a rise in the number of adjudications around contracts as government support comes to an end and cash becomes scarce for many businesses.

Ian Timlin, a dispute resolution specialist at Conexus Law, is urging companies that might have a claim in a construction contract or might be on the receiving end of one to consider whether adjudication might apply to it. If so, they need to be prepared and either understand how they intend to initiate their own claim or ensure that they are not ambushed by an adjudication claim against them. “Given the tight timescales, a referring party often takes a responding party by surprise,” he concludes.

Ian explains: “Adjudication is the very quick (often 28 day) private and cost-effective procedure of resolving disputes in construction contracts. You cannot contract out of it and it applies to a construction contract which is an agreement with a person for any of the following:

• The carrying out of “construction operations”.
• Arranging for construction operations to be carried out, whether under a sub-contract or otherwise.
• Providing labour (either his own labour or others’ labour) for the carrying out of construction operations.

It also includes contracts with construction professionals.

“Traditionally used by contractors, adjudication is also a quick and cost-effective solution for an employer or building owner to obtain payments to resolve defects with a building that the contractor cannot or does not want to rectify or to resolve payments due to a contractor. We generally see adjudication used to resolve disputes in respect of the final account, interim payments, defects, delays and disruptions, as well as with works and extensions of time for the completion of works. All of these have been made more likely as a result of the impact of Covid-19, as many companies have struggled to deliver.”

Finally, Ian comments that a party to a construction contract can refer a dispute to adjudication at any time before or after construction works or operations have been completed, so used mid contract, it may offer resolution to a dispute with limited disruption to an on-going project or relations.

HOW CAN CONEXUS LAW HELP?

For further advice on adjudication, please contact Ian Timlin via his contact details below. Ian has been a CEDR accredited mediator since 2000.

Ian Timlin
Main: +44 (0)20 7390 0280
Mobile: +44 (0)77 6742 7332
[email protected]

Conexus Law Launches New Service to Help Organisations Mitigate “Brexit Risk”

Conexus Law, the specialist provider of legal advice to businesses operating at the intersection of the built environment, technology and people, has launched a Brexit Contract Management and Audit Service. It is designed to help address the many unresolved issues following the Christmas Eve Agreement.

The new service will help organisations manage any potential contract risks and assess existing contractual arrangements that may require attention to ensure continuity of commercially viable relationships post BREXIT. It will include a full audit of all contracts including a review of standard terms and conditions (both signed and those under negotiation), and any bespoke contracts with both suppliers and customers, together with business contracts which touch every business area whether it be IT, purchasing, product, sales and marketing, office services, facilities maintenance, logistics or outsourcing.

In addition advice will be given as to whether a contract has a mechanism or opportunity to exit or re-negotiate its terms should this be necessary. While the service will focus on arrangements with EU suppliers or customers, it can include the full suite of contracts globally (including UK to UK contracts and UK to non-EU contracts).

Brexit will also impact trade between the UK and global markets and between the EU and global markets, with likely increased customs and duty requirements and costs. All of this will be taken into account when setting the scope of the contract audit.

Ed Cooke, Founder at Conexus Law, said: “Although The Christmas Eve Agreement gave some clarity, businesses continue to be faced with uncertainty. There are clear implications for many areas such as supply chains, imports and exports and employment that will affect the technology and datacentre sectors and our service will ensure full visibility of the commercial impact of Brexit on the business.”

HOW CAN CONEXUS LAW HELP?

Businesses and individuals will need legal advice to help them understand the risks they may face and the options that may be open to them.

We are available to assist in reviewing the laws in many jurisdictions across the world, and to review specific contracts. We are also available to provide practical, business-orientated advice on how to best protect yourself from the ongoing commercial effects of Brexit.

Contact

For further advice on mitigating Brexit risks, please contact Ed Cooke.

T: +44 (0)20 7390 0281
M: +44 (0)7535 123000
E: [email protected]

International business faces post Brexit data threat warns legal expert

Laptop with padlock

From 1 January 2021 the United Kingdom will lose its automatic status as a safe destination for EU data when it falls outside of the EU’s legal jurisdiction. This will affect all EU data to be transferred to the UK (or any ‘third country’ that is not an EEA member.)

According to Phil Brown, a specialist lawyer at Conexus Law, it is doubtful that transfers from the EU to the UK will be compliant with GDPR following court case in October which held UK law incompatible with EU law – and similarly no transfers to the US would be compliant following a judgement in July 2020 which rendered Privacy Shield invalid.

“This clearly poses a huge threat to international business and it is hard to see that it will be allowed to continue, although equally the contrasting views of Europe and the US as to data protection mean it is a difficult one to see resolved without wholesale legislative changes to either the European or US regimes. The UK is clearly more aligned with the rest of Europe, and so one would hope that the differences can be resolved swiftly and effectively but given the political implications of Brexit across Europe there remains a distinct lack of clarity,” comment Phil.

Phil has created a guidance paper on the subject which outlines the possible options for businesses and likely outcomes.

HOW CAN CONEXUS LAW HELP?

Businesses and individuals will need legal advice to help them understand the risks they may face and the options that may be open to them.
We are available to assist in reviewing the laws in many jurisdictions across the world, and to review specific contracts. We are also available to provide practical, business-orientated advice on how to best protect yourself from the ongoing commercial effects of Covid-19.

Contact

For further advice on GDPR or pursing your contractual rights, please contact Philip Brown.

T: +44 (0)20 7390 0289
M: +44 (0)7887 538308
E: [email protected]

 

Law firm warns of Post Brexit GDPR impact

Conexus Law, the specialist advisory firm that provides legal and commercial advice to clients who work in sectors where the built environment, technology, engineering and people converge, is urging companies to prepare for the strong possibility that the EU will fail to agree that the UK has an “adequate data protection regime” after the transition period at the end of the year. This will mean that businesses will face barriers transferring personal data to and from the UK to EU countries under GDPR. The warning comes on the back of the ruling by the European Court of Justice at the beginning of July that reversed the prior adequacy decision of the EU for the USA – rendering its Privacy Shield ineffective.

Ed Cooke, Founder at Conexus Law said: “The UK’s use of mass surveillance techniques, our Investigatory Powers Act, and our membership of the Five Eyes intelligence sharing community has raised particular concerns with the EU – especially in relation to the sharing of data with the US, and even more so given the recent Schrems II decision on the Privacy Shield scheme. What is clear is that once a decision has been made then companies will need to move quickly to ensure they are not severely impacted.”

Failure to reach an agreement would mean that companies will need to look at alternatives such as Standard Contractual Clauses and binding corporate rules. Ed reiterates that merely relying on consent is not really an option for most businesses.

“Each of these options has its challenges with consent generally viewed to be unworkable as it can be revoked at any time. Standard Contractual Clauses were upheld in the ECJ in its judgment on Privacy Shield, but the judges did cast some doubt on whether or not these offer suitable protection in all cases without businesses adopting further practical measures such as encryption, to ensure the protection of personal data,” explains Ed.

Conexus Law is advising companies to start preparing now. Companies should already have a full audit of what personal data they collect and where it is stored and transferred to, including back-ups that may be held by cloud-based providers with datacentres all over the world. This audit needs to include all suppliers and partners that data is shared with. The next stage is to look at standard contractual clauses and decide whether further measures are required based on the specific data being transferred. If not, consideration should be given additional methods such as encryption.

“It seems that an adequacy ruling under GDPR is being used as a BREXIT bargaining chip in relation to other unrelated diplomatic negotiations taking place. Unfortunately, businesses may end up bearing the brunt of this and I would highly recommend that they start to prepare now,” concludes Ed.

Fact Sheet: Publishing a modern slavery statement during the pandemic

Under the Modern Slavery Act 2015, commercial organisations that meet the requirements below are required to publish an annual modern slavery statement setting out the steps they have taken to identify and address their modern slavery risks:

  • ‘body corporates’ or partnerships, wherever incorporated or formed
  • that carry on a business, or part of a business, in the UK
  • and supply goods or services
  • with an annual turnover of £36 million or more.

Fact Sheet: Update on Telecommunications Infrastructure (Leasehold Property) Bill 2019-21

The Johnson government plans to roll out UK-wide gigabit-capable broadband by 2025.

The Telecommunications Infrastructure (Leasehold Property) Bill 2019-21 is set to amend the 2017 Electronic Communications Code, so as to streamline the process by which network operators may gain access to multi-let residential properties.

It is hoped this will deal with the particular problem of the landlord who is unresponsive to requests to allow access.

Landlords urged to be aware of ‘Faster Broadband’ legislation, FM Briefing

Landlords are being advised to be aware of forthcoming legislation designed to assist in the Government’s commitment to the roll out of faster more resilient broadband across the UK by 2025.

The call comes from specialist advisory firm Conexus Law as a reminder about the Telecommunications Infrastructure (Leasehold Property) Bill 2019-21, which is set to amend the 2017 Electronic Communications Code to streamline the process by which network operators may gain access to multi-let residential properties.

It is hoped this will help to deal with the particular problem of the landlord who is unresponsive to requests to allow access, something that is recognised as a major obstacle to meeting the Government’s target.

Emma Cordiner at Conexus Law said: “Though it is difficult to argue against the motivation for the bill, some private landlords may see it as bordering on the draconian. However, timely responsiveness and collaboration by landlords should avoid forceful operator action, so now (as ever) would be the time for all landlords to adopt good habits and pay closer attention to any operator requests for access to install infrastructure.

“At this stage, landlords need to have the bill on their radars, and in spite of the bill, might do well to plan the implementation of broadband infrastructure policies for their buildings, with one eye on a forthcoming need to be more responsive to operator requests. Ultimately a well-managed property with the best of broadband capability will only ever be an attractive prospect to tenants.”

Source: facilitiesmanagementforum.co.uk/landlords-urged-to-be-aware-of-faster-broadband-legislation