See-through titles: setting the scene
Draft regulations for the operation of the new statutory Register of Controlled Interests in Land are out for consultation. What impact are they likely to have on property law practice?
The Land Reform (Scotland) Act 2016 made a number of changes to the way landownership in Scotland is, and will be, regulated. While several of the provisions of the Act have still to be brought into force, we are now one step closer to the implementation of part 3, s 39(1) of which obliges the Scottish ministers to legislate to “make provision (a) requiring information to be provided about persons who have controlling interests in owners and tenants of land, and (b) about the publication of that information in a public register kept by the Keeper of the Registers of Scotland”.
In June, the Scottish Government published draft regulations setting out its proposals for the way that this new register – to be known as the Register of Persons Holding a Controlled Interest in Land – will operate in practice.
The Government’s stated purpose in setting up the new register is to “increase public transparency in relation to individuals who have control over decision making in land”, with the aim of “empowering people and communities to influence how Scotland’s land is owned and managed”. In other words, the intention is that the register will make it easier to identify exactly who the decision makers are in relation to land, where that is not already clear from the Land Register or the General Register of Sasines.
Transparency on record
The regulations will apply to both landowners and tenants under long leases. While the identity of the legal owner of land or the tenant under a long lease is already a matter of public record through the Land Register or Register of Sasines, the new register will go one step further – it is not only the owners and tenants themselves who will be identified, but now also those influencing them behind the scenes.
The new register will require additional information to be disclosed to the Keeper wherever it appears that the information in the Land Register or Register of Sasines is insufficient to reveal the identity of those actually exercising control over, and making decisions about, the land in question. Broadly, this will be where the legal owner or tenant is a general partnership, a trust, an unincorporated association, an overseas legal entity, or where a contractual or other arrangement is in place giving a third party significant influence or control over the land. The consultation papers describe such arrangements as “opaque”; the aim of the new register is to make them transparent.
Property lawyers will be pleased to know that the disclosure of information to the new register will not be a precondition of title registration in the Land Register; however registered landowners and tenants will nevertheless be under a duty to provide information to the register. Failure to do so will be a criminal offence, with a maximum fine of £5,000. A six-month transitional period is proposed from the date on which the new register is to come into force (currently set as 1 April 2021) before these criminal offence provisions will become enforceable.
There will be a narrow exemption available for any individual who can provide evidence to the Keeper that the publishing of information about them in the register would put them at risk of violence, abuse or the threat of violence or abuse or intimidation (for example, a victim of domestic abuse who does not wish their name and address to be published). This will be known as a “security declaration” and, if accepted, will mean that no information about that person will be disclosed.
What to notify, and when
The register will contain an entry for each piece of land owned or held on a long lease where the registered owner or tenant is a “controlled interest”. The registered owner or tenant will be the “recorded person” in relation to the relevant land; any person with a controlling interest over that person will be an “associate”. The register would contain:
- the name and address of the recorded person;
- the title number or an identifiable description of the land;
- the capacity in which the recorded person owns or leases the land (for example as an individual, a partner or a trustee);
- the same details in relation to each associate, plus further detail such as the associate’s month and year of birth and the date on which the association began (or, where appropriate, a security declaration).
The first two of these pieces of information are of course already publicly available from a search of the Land or Sasine Register; the remaining information will be newly publicly available once the register is up and running.
Required details about associates must be given to the Keeper by the landowner or tenant as the recorded person within 60 days of the relevant party becoming an associate. The notification requirements do appear rather onerous. As well as gathering all of the required details and providing them to the Keeper, the recorded person must first “take reasonable steps” to verify that the information is accurate, and also must provide each associate with a separate notice (in a form to be specified by the Keeper) setting out this information, as well as confirming their duties and obligations as associate. In turn, the associate is under a duty to verify that the information about them is correct, or to take the initiative to provide the required details to the landowner or tenant where they have failed to act within the required 60-day period.
How will this work in practice? It is clear that when the new register is launched, care will need to be taken to determine whether the regulations apply to a particular title and, if so, exactly what information has to be disclosed for publication by the Keeper. Schedule 1 to the regulations provides further guidance as to who will, or will not, be classed as associates in particular circumstances, though it is not hard to envisage more complex schemes where careful consideration will be required. Two examples are as follows:
- Partnership. Title to the land is registered in the name of individual A (the recorded person). A in fact holds the land in trust for partnership X. Individuals A, B and C are the partners in X. The new register will now disclose (i) that A holds the land on behalf of X, and (ii) the identities of B and C as associates. It should be noted that, as drafted, the regulations go even further than this and there are instances where even a former partner may still be considered an associate if they continue to have influence over business decisions – a not uncommon scenario in family businesses where perhaps a parent has resigned from the partnership but remains involved in decision-making. In addition, the Keeper will need to be notified each time that the makeup of the partnership changes, for example by the death, assumption or resignation of a partner.
- Trust. Title to land is registered in the names of trustees A and B (the recorded persons), in trust for trust X. C is assumed as a new trustee. At present, there is no need for any disclosure to the Keeper in this situation, but in future, the assumption of C will need to be notified to the Keeper within 60 days and the new register will disclose the identity of C as an associate. If B then resigns, again notification to the Keeper will be required within 60 days. The register will not disclose information relating to beneficiaries where they have a purely financial interest in the trust, but beneficiaries may be classed as associates if they also have a role in the governance or control of the trust.
It should be noted that professional advisers, such as solicitors and accountants, and creditors are specifically excluded from the ambit of the regulations, as are landlords in the case of leasehold titles.
What if the information entered on the register is, or becomes, incorrect or out of date? As noted, recorded persons will be under a duty to notify the Keeper of an event that affects the information on the register, such as where an associate ceases to be an associate, or even where the information held about an associate changes, for example a change of address. In turn the Keeper will be under a duty to amend the register as appropriate. It will also be possible to refer questions relating to the accuracy of the register to the Lands Tribunal, although presumably this would only apply in practice where there is a dispute between the recorded person or associate and the Keeper.
In the context of the additional administrative burden that the new register will inevitably place on solicitors and their clients alike, it is perhaps cold comfort to note that the Scottish Government has committed to avoid the duplication of information in the new register and elsewhere if possible. For example, information about persons with significant control of UK companies that own or lease land in Scotland is of course already publicly available via the Companies House website and therefore would not be duplicated in the new register.
It is also worth noting that the UK Government announced earlier this year that it would establish a Register of Overseas Entities’ Beneficial Owners and have this operational by 2021. This would apply to overseas legal entities, including companies, which own land or are tenants of registrable leases in the UK. The legislation establishing that register has not yet been introduced at Westminster, but it seems inevitable that there would be some overlap with the Register of Controlled Interests in Scotland. The draft regulations do not currently take into account the proposals for the new UK register, and it is therefore likely that the regulations will need to be amended at a later date to take account of the UK-wide proposal.
The consultation will be open for responses until 8 November 2018 and all those with an interest are encouraged to provide feedback on the draft regulations. The consultation paper, draft regulations, explanatory notes and response form can all be found at consult.gov.scot/land-reform-and-tenancy-unit/transparency-in-land-ownership/
Anneli Spence, senior solicitor, Thorntons Law LLP, Perth