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

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.

Jane Pittaway joins Conexus Law

2023 will be the year all businesses (yes, every single one) need to put ESG right at the top of their corporate priorities. And quickly. Which is why Conexus Law has recruited climate conscious contracts lawyer and sustainability specialist Jane Pittaway. With an ever increasing volume of ESG legal requirements coming through, Jane can ensure the firm’s clients are future fit and climate resilient.

“No business or sector is immune” according to Jane who will deliver tailored climate and ESG programmes alongside the Conexus Law team sector experts across the Digital Infrastructure, Construction, BuildTech, Sport and Energy sectors.

Conexus Law Managing Partner Ed Cooke; “With Jane’s expert advice, our clients can minimise risk and maximise opportunities whilst accelerating the climate transition.”

A commercial partner with extensive international experience, Jane is executive vice-chair at Lawyers for Net Zero a non-profit organisation engaging and supporting GCs and their teams to take climate and ESG leadership and deliver climate action to tackle the climate and ecological crises. Jane works directly with GCs or leadership teams.

Please contact Ed Cooke ([email protected]) or Jane Pittaway ([email protected]) to book a Discovery Session directly with Jane.

Nancy Lamb Joins Conexus Law to Launch Collaborative Contracts Service

Conexus Law continues its growth and recruitment drive with the hire of Nancy Lamb, a leading expert in data centre construction contracts.

Lamb, who is known for her straight-talking, no-nonsense approach, offers to understand, negotiate and implement construction contracts to maintain project momentum and avoid expensive disputes. Conexus Law’s managing partner, Ed Cooke, and Lamb will be launching a new and unique service using the latest techniques for collaborative contracting exclusively for the data centre industry.

Ed Cooke; “As a law firm specialising in data centres we need lawyers totally embedded in the sector. A construction lawyer with big law firm experience who has super-niched in data centres, Nancy is one of the best and we’re thrilled that she’s joining our growing team at a critical stage in our development. Demand is soaring for a lawyer with Nancy’s exceptional skills and background. I’ve seen her in action, she gets things done, she delivers results.”

Nancy Lamb trained at Pinsent Masons later joining the firm’s top-ranked Construction Team before moving to Hill Dickinson LLP, also in construction. Lamb moved on from private practice law firms to work in various executive roles for Tyco Fire Product, Sudlows and MiCiM.

Nancy Lamb; “Conexus Law is the right choice for me for many reasons and here are my top two. Ed can see the value I will bring to clients because of my unique insight having worked in both the legal world and on project delivery. Second, the potential is huge. Collaborative contracts are so important because they acknowledge and value relationships – rather than processes – and the start to moving away from the existing adversarial and confrontational nature of construction projects. We can do better than that! A collaborative approach is particularly important in the data centre sector because the pool of stakeholders is so small. I’m looking forward to working with Conexus Law clients and introducing my own connections.”

Conexus Law is recruiting technology and corporate partners while broadening its team of consultants. Since launching 2019, Conexus Law has built a consultancy team that includes Emma Cordiner, data centre real estate expert, and Gavin Johnson, who heads up the firm’s Buildtech team.

Ed Cooke; “We’ve set the bar high on our recruitment standards and it takes a special kind of lawyer to join our team. Big firm experience and a track record in our markets are important because clients expect leading edge advice and outlook. We also need ambitious people, with entrepreneurial flair, who are keen to play their part in growing our firm. There is an exciting future for the right candidates.”

Conexus Law is a unique, challenger brand, boutique law firm advising clients operating at the intersection of the built environment, technology and people.

For further advice on Collaborative Contracting please contact Nancy Lamb via her contact details below.

Nancy Lamb
Main: +44 (0)20 7390 0280
Mobile: +44 (0)7771 877234
[email protected]

What to Consider if Your Contractor Goes Bust

As a result of the pandemic, we have seen, and advised on, numerous instances where main contractors have downed tools or closed sites. In some cases, this has been a temporary hiatus to construction works as we and our client employers have persuaded or assisted main contractors to return to site. However, we have unfortunately seen occasions where the contractor has gone bust and never returned to site.

If faced with contractor insolvency, we set out below what you need to consider and those matters with which you may need to deal:

If you have a funding agreement, notify your funder of the contractor’s situation. Buy yourself some time with your funder to give you breathing space to work out how any outstanding works are to be completed. Remember that most funding agreements will contain obligations requiring you to provide information (such as news of insolvency) to the funder in a timely fashion.

Immediately secure the site and materials on it. Ascertain what you have paid for in full, what is part paid for and what are contractor or sub-contractor assets on site.

Prepare a detailed valuation of the works and, if you have one, request the contract administrator to undertake a formal valuation. Ascertain the works to be completed (including any defects not yet rectified), revise any works programme (including ascertaining what is on the critical path), calculate the costs to finalise the works, whether extra funding will be required to finalise them and any disputes about the works already existing.

Check insurance coverage and insure the site, the works and check the insurance position in respect of any third party assets to remain on site. The contractor will likely have carried public liability, employers liability, professional indemnity insurance (if providing design) and contractor’s all risk insurance. These may come to an end with its insolvency or termination of the building contract (see below). Decide what insurances you will need in place for the future of the project. Also check any insurances you have in place in respect of the project and whether they require you to inform your insurer of the main contractor’s insolvency.

Check the contractual documentation:

  • Be it a JCT contract, NEC form of contract or bespoke agreements, they should set out provisions for termination on insolvency of the main contractor. Follow the provisions of your contracts to the letter to formally bring your contract with the main contractor to an end, especially where you want to engage a new contractor to finish any works or oversee their completion yourself.
  • Is there a parent company guarantee or performance bond you can claim under?
  • Have the trigger events in such agreement occurred?
  • Do you have any collateral warranties from subcontractors? These may assist you and give you step in rights to take over vital supply chain contracts.

Make immediate checks to ensure that documentation for which the contractor was responsible can be located and is up to date (eg health and safety records, drawings, test certificates, manufacturers’ warranties etc).

Unless commercially imperative, do not make any further payments to any party about the works until you know your full position.

Decide how any outstanding works are to be completed after formal termination of the main contractor’s contract. Generally, the options will be a new main contractor or the employer or a construction manager to manage the existing or new sub-contractors. Agree a new contract with a new main contractor (likely to be on a cost plus basis) or with a construction manager.

Take advice as to whether you have any claims against the main contractor and whether these are commercially worth pursuing.

The first days after a main contractor has entered into some form of insolvency procedure are critical and it will be an intensive time of information gathering and decision making. It is however hoped that you will have seen some of the warning signs that your main contractor may be in difficulty (eg less activity on site, slow or late deliveries, plant or equipment disappearing from site, requests for accelerated payments, programme issues, persistent rumours about the main contractor’s financial position including sub-contractors and suppliers not being paid, late filing or qualified accounts being filed at Companies House and a new evasiveness in communications) before they go bust and you have been able to undertake some pre-planning before their insolvency occurs.

HOW CAN CONEXUS LAW HELP?

If you would like advice on your options where you believe that your main contractor may be in financial difficulties or after it goes into insolvency, please contact Ian Timlin or Ed Cooke whose details are below.

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

Ed Cooke
Main: +44 (0)20 7390 0281
Mobile: +44 (0)7535 123000
[email protected]

Ed Cooke, Founder of Conexus Law took part in Andy Davis’ Inside Data Centre Podcast

Ed discusses why he established his own specialist legal practise, what the main legal challenges are in the sector, what impact the pandemic has had on the industry, and his views on the future of the industry.

Listen here

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.

Another specialist lawyer joins the fast-growing team at Conexus Law

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 has been joined by Gavin Johnson, a built environment technology, construction and engineering lawyer.

Gavin advises Built Environment Technology start-ups on business growth, regulatory, finance and investment, and technology issues. He is a member of the Policy Advisory Committee for the Construction Blockchain Consortium at University College London, advising on policy development for blockchain technologies.

Gavin has over 14 years’ experience of advising clients across several sectors of the built environment, including healthcare, education, real estate, energy, utilities and infrastructure. He also focuses on contentious matters, in-project dispute avoidance and resolution, as well as project completion and legacy. He has further experience in a range of legal disciplines including corporate, finance, regulatory and competition.

Gavin said: “Conexus Law is unique in its focus on this fast moving and challenging sector and I am excited to be part of it. My passion for technology runs throughout my work within the built environment and I have experience across the board, working with start-ups and R&D departments to help support their innovations and with large construction companies to help them to better utilise the latest technology that is available.”

Ed Cooke, Founder at Conexus Law, said; “My decision to start this firm was born from a desire to create a culture that values respectful, meaningful human interactions and connections that will benefit the company and our clients by ensuring individual, team and client satisfaction. Key to this is getting the right people in place and Gavin is a great fit for us.”

Digitalisation World talks to Conexus Law – Adjusting to life after lockdown

Digitalisation World talks to Marilyn Heward-Mills, an employment lawyer at Conexus Law – covering workplace advice for the data centre sector, as both employers and employees adjust to life after lockdown.

Black Lives Matter: How employers can engage with the conversation, AMBA

Racism is an issue that lives within many organisations and employers should consider committing to making real and substantial change now, starting by engaging in the conversation with all employees, says legal expert Marilyn Heward-Mills

The shocking killing of George Floyd at the hands of law enforcement officers in the US, which has resulted in mass protests across the US and in the UK, has once again highlighted the disturbing reality of deep-rooted race discrimination within our society.

Although it might be tempting to confidently profess that racism does not exist within your workforce or business, that might not be the best conclusion to reach without further examination.

In the UK, the Equality Act 2010 prohibits direct and indirect discrimination and harassment in the workplace in respect of race (which includes colour, nationality, ethnic and national origin).

Nevertheless, racism is an issue that lives within many organisations, and employers should consider committing to making real and substantial change now, starting by engaging in the conversation with all employees, regardless of race or background.

Research shows that people from ethnic minority groups are often at a disadvantage in the labour market and are more likely to be unemployed and over-represented in poorly paid and unstable jobs. There is also a significant under-representation of ethnic diversity at the top of UK boards, as shown by the Government’s recent Parker Review.

Particularly, at this time, doing nothing might be damaging to your workforce morale and your reputation, and might not be the responsible business response.

Set out below are some practical steps that you, as a business leader, might consider:

  • Acknowledge that the death of George Floyd and the ensuing mass protests has an impact on your BAME (black, Asian and minority ethnic) employees.
  • Express your sadness and sympathy about the situation.
  • Clarify and communicate your organisation’s stance and values on the subject of racism.
  • Declare a commitment to begin or continue the process of open dialogue with your staff about how racism impacts them and your business.
  • Consider ways to engage meaningfully in the conversation around racism by creating a safe environment in which individuals can share their personal experiences and learn from each other.
  • Commit to listen to the concerns and needs of all of your workforce.
  • Commit to educate yourselves and your staff about the realities faced by BAME individuals in the work and social space, including those that you employ or transact with.
  • Ensure diversity and inclusion remain top of your agenda and commit to action that will ensure you achieve your goals.
  • Determine what other steps you must take to ensure racism is stamped out in your organisation and how you will build a diverse, supportive culture that is respectful and fair for all.
  • Commit to leadership and action and set targets for required change.

Marilyn Heward-Mills is an Employment Solicitor at Conexus Law.

Source: www.associationofmbas.com/black-lives-matter-how-employers-can-engage-with-the-conversation

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