Forsters acts on acquisition of part of Royal Albert Dock, Liverpool
5 June 2023
News
We are delighted to announce that members of a multi-disciplinary Forsters team have acted for a joint venture between developer General Projects and investor Neo Capital on the acquisition of part of the Royal Albert Docks in Liverpool.
The acquisition, reported in BBC News, was part funded by a loan from Merseyside Pension Fund.
The iconic, 375,000 sq ft mixed use asset forms part of the largest single collection of Grade 1 listed buildings in England. The joint venture plans to evolve the dock into the “most exciting experiential and authentic destination in the UK”.
Jacob Loftus, chief executive officer of General Projects, said: “We are honoured to have become custodians of one of our country’s most significant landmarks and one of its most magnificent examples of industrial heritage.”
Commercial Real Estate Partner, Katherine Ekers, who led the Forsters team, said: “This is a fantastic project on a sensitive site of national importance. We look forward to working with Neo Capital, General Projects, Merseyside Pension Fund and others to progress the ambitious, exciting plans for the next phase in the history of the dock”.
Partner and Head of Banking & Finance, Victoria Edwards, said: “It was great to be part of the multi-disciplinary team at Forsters with banking and property working side by side on this terrific asset.”
Forsters advises McLaren Applied Limited on its Asset Based Lending (ABL) facilities.
17 November 2022
News
Forsters has advised McLaren Applied Limited, which is known as a technology first supplier, notably to the motorsport industry in relation to its ABL and cashflow facilities with IGF.
This transaction highlights Forsters’ expertise in advising borrowers on their ABL facilities which are becoming increasingly popular in the UK debt market.
Earlier this month, the British Business Bank outlined the key terms of a new iteration of the Recovery Loan Scheme intended to help smaller UK businesses in their battle against rising costs in the current economic climate.
Previously…
As we explained in our earlier articles (see here and here), the Recovery Loan Scheme was originally launched by the UK government in April 2021 with the aim of supporting UK businesses during the Covid-19 pandemic by enabling access to the finance they needed to continue trading. Initially set to close at the end of 2021, the Recovery Loan Scheme was subsequently extended for an additional period of six months until June 2022 (albeit with a lower maximum loan amount and a reduced government guarantee).
The trailer
In a press release on 20 July 2022, the Department for Business, Energy and Industrial Strategy (“BEIS”) announced that the Recovery Loan Scheme, would be extended for a further two years until the end of June 2024 and will be open for applications from August 2022 (the “Extended Scheme”).
The new series
Key features:
Extended Scheme ends
30 June 2024
Available to
Businesses:
(a) with a turnover of up to £45 million;
(b) carrying on trading activity in the UK; and
(c) which are not “businesses in difficulty”
Loan amount
Asset and invoice finance: Between £1,000 and £2 million
Term loans and overdrafts: Between £25,001 and £2 million
Term lengths
Term loans and asset finance facilities: Between three months and six years
Overdrafts and invoice finance: Between three months and three years
Government-backed guarantee
70% against outstanding balance of the loan following normal recovery processes
Personal guarantee
Lenders may take personal guarantees irrespective of the size of the loan
Pricing
Annual effective rate of interest and upfront and other fees are capped at 14.99%
Aside from the extended end date, a further significant change is that, unlike the original Recovery Loan Scheme, there is now no requirement for a business to confirm that it has been adversely affected by Covid-19. In a similar vein, any business which has previously taken out one of the other government-backed loan schemes during the pandemic (the Coronavirus Business Interruption Loan Scheme, the Coronavirus Large Business Interruption Loan Scheme, the Bounce Back Loan or the original Recovery Loan Scheme) will still be able to take advantage of the Extended Scheme.
The cast
As with the original Recovery Loan Scheme, the Extended Scheme will be administered, on behalf of BEIS, by the British Business Bank.
Lenders which are participating in the Extended Scheme will be listed on the British Business Bank’s website once applications are opened. This date is yet to be announced.
Disclaimer
This note reflects the law as at 17 August 2022. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.
The Register of Overseas Entities is Go! What does this mean for lenders?
12 August 2022
News
The register of overseas entities (the Register) which was created pursuant to the Economic Crime (Transparency and Enforcement) Act 2022 (the ECA) went live on 1 August 2022. As such, overseas entities can now apply to Companies House to register, although property transactions will not actually be affected until 5 September 2022. So, what does this mean for lenders? Here, we provide an update and suggested practical steps.
Who must apply to the Register?
Any body corporate, partnership or other legal entity which is governed by the laws of a country outside of the UK (an overseas entity) that:
owns a UK freehold interest or a lease exceeding seven years (a Qualifying Estate) which was acquired after 1 January 1999; or
intends to acquire a Qualifying Estate,
must apply to the Register.
(Overseas entities that do not own or intend to acquire a Qualifying Estate may choose to be listed on the Register, but this is not a legal requirement.)
In addition, any overseas entity which has disposed of UK property since 28 February 2022, must provide certain details to Companies House. This is the case even where that overseas entity no longer owns any UK property although how this will be monitored and enforced in reality remains to be seen. Given the complexity and size of the exercise in registering overseas entities which currently own UK property, one could be forgiven for thinking that extending the notification obligations to overseas entities which no longer hold any UK property may well be a step too far.
Upon registration, Companies House will confirm due entry in the Register and provide the overseas entity with a registration number.
What information must be submitted to the Register?
An overseas entity is required to provide certain information about itself (including its name, country of incorporation or formation and registered office) and identify its registrable beneficial owners (or confirm that it does not have any) to the Register. Such information must, on an annual basis, be updated or confirmation given that no update is required.
Where the overseas entity does not have any registrable beneficial owners, it must instead give details of its managing officers.
Details of any disposition of UK property made since 28 February 2022 must also be provided.
The information to be submitted in the application for registration must be verified by a UK-regulated agent and their details must also be provided. Various service providers such as accountants and law firms can apply to take on this role but in so doing, will also take on various risks and responsibilities. It remains to be seen how many choose to do so.
Although the Register will be publicly available, certain information, such as the residential address and date of birth of individuals will be kept confidential.
What is a registrable beneficial owner?
Essentially, a beneficial owner is anyone who:
holds, directly or indirectly, more than 25% of the shares or voting rights in the overseas entity
holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the overseas entity
has the right to exercise, or actually exercises, significant influence or control over the overseas entity
has the right to exercise, or actually exercises, significant influence or control over the activities of a trust, and the trustees of such trust meet any of the conditions specified above in relation to the overseas entity.
There is a specific carve-out in respect of share charges which provides that the rights attaching to the charged shares will be held by the chargor if the rights (other than the right to exercise them for the purpose of preserving the value of the security, or of realising it) are exercisable:
in accordance with the chargor’s instructions; and
(where the shares are held in connection with the granting of loans as part of normal business activities) only in the chargor’s interests.
As such, a lender will not be deemed a beneficial owner solely because a share charge has been granted to it.
Property transactions and legal charges
Much depends on when the overseas entity became the registered proprietor of the Qualifying Estate.
Where an overseas entity acquires a Qualifying Estate on or after 5 September 2022, HM Land Registry will refuse to register title to the property unless the overseas entity is included on the Register. As such, to acquire any UK property on or after 5 September 2022, the overseas entity must be duly registered.
Where an overseas entity acquired a Qualifying Estate on or after 1 August 2022 but before 5 September 2022, HM Land Registry:
will register that overseas entity as the proprietor of the Qualifying Estate without the overseas entity being on the Register; but
will place a restriction on title in the land register, which will prevent the registration of any relevant disposition of that property (i.e. a transfer, grant or assignment of a lease for a term of seven years or more, or the grant of a legal charge) unless the overseas entity is listed on the Register (or an exemption applies).
Where an overseas entity was already the registered proprietor of a Qualifying Estate prior to 1 August 2022, HM Land Registry will place a restriction on title in the land register. Such restriction will take effect from 31 January 2023 (the end of the six-month transitional period) and will prevent the registration of any relevant disposition of the property unless the overseas entity is listed on the Register (or an exemption applies).
From a lender’s point of view, this means that where an overseas entity became the registered proprietor of a Qualifying Estate:
on or after 5 September 2022, the overseas entity will need to be on the Register in order to be able to register a legal charge at HM Land Registry;
between 1 August 2022 and 4 September 2022, the overseas entity will need to be on the Register in order to be able to register a legal charge at HM Land Registry; and
prior to 1 August 2022, a legal charge can be registered at HM Land Registry without the overseas entity being included on the Register until 31 January 2023, although an application to register must have been made by this date and details of the legal charge will need to be disclosed at the time of application.
Enforcing a registered legal charge however, is a different story as it falls within one of the exemptions. Where a secured creditor (or a receiver appointed by the secured creditor) exercises its power of sale under a registered legal charge or a disposition is made by a specified insolvency practitioner in specified circumstances, the lack of registration by the relevant overseas entity will not prevent such sale or disposition.
What is the deadline for registration?
As mentioned, any overseas entity acquiring a Qualifying Estate on or after 5 September 2022 will need to be on the Register before the acquisition can be registered at HM Land Registry.
Although an overseas entity which acquires a Qualifying Estate between 1 August 2022 and 4 September 2022 will not need to be on the Register for the purposes of the acquisition, it will need to be registered if it wishes to make any relevant disposition of the land and it must in any event have applied for registration by 31 January 2023.
Any overseas entity which held a Qualifying Estate prior to 1 August 2022 is required to apply to register by 31 January 2023.
Non-compliance
The penalties for non-compliance can be severe and failure to register or to comply with the annual update requirements will prevent the completion of property-related transactions. In addition, failure to register on time or to comply with the annual update requirements are criminal offences.
For more information about the Register and how it will affect lenders, see our previous articles.
What should lenders be doing now?
The main effect on lenders is the ability to register a legal charge at HM Land Registry
Be aware that overseas borrowers which currently own UK property should now be applying to register and will have until 31 January 2023 to do so, although if they acquired the property between 1 August 2022 and 4 September 2022, they will need to be on the Register to make a relevant disposition of that property. You may want to amend their ongoing obligations in the facility documentation to ensure that they provide you with confirmation that such registration has taken place and evidence that they have complied with their annual update obligations.
Any facility agreements and related security documentation which are currently being negotiated for completion before 5 September 2022 should include an obligation on the overseas entity borrower to apply for registration promptly after completion, to comply with the Register’s annual update requirements and to provide you with evidence that they have done so.
If you are currently dealing with any facility agreements and related security documentation for completion on or after 5 September 2022, you should ensure that the overseas entity borrower is listed on the Register prior to completion. Failure to do so may hold up completion as HM Land Registry will not be able to make the appropriate entries in the land register, including registration of any legal charge over the Qualifying Estate. The documentation should also include undertakings that the borrower will comply with the Register’s annual update requirements and provide you with evidence that they have done so.
Important dates
28 February 2022: details of any relevant disposition of land since this date must be disclosed to Companies House
1 August 2022: Register becomes effective although the property-related provisions are not yet in force
5 September 2022: property-related provisions take effect.
31 January 2023: end of transitional period. Restrictions on title placed on the land register for overseas entities which owned UK property prior to 1 August 2022 take effect
Disclaimer
This note reflects the law as at 11 August 2022. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.
Making wine is expensive. You need the land, the labour and specialist plant and machinery plus long-term capital to support expansion and maintenance. It takes five to ten years for a new vineyard to start selling wine so sufficient capital will be needed in the early years.
Where that money comes from is important. Are you borrowing it? From whom? What is the loan secured on? A range of assets can be used for security, not just land itself; some require more bespoke financing than others. The right finance can make a huge difference to the amount you can borrow, the interest you pay and how much flexibility you have over the operation of the business.
Generally, land is the easiest asset to secure and, in recent years, money has been reasonably cheap. However, high street lenders will not usually lend against agricultural property, meaning you need to approach the handful of specialist lenders in this area. Larger and more established vineyards with a trading history meanwhile are increasingly using asset-based lending, which is borrowing against receivables generated by the business as well as land, plant and machinery. This often provides more flexible working capital than vanilla loans secured against just the land.
As with any financing, it is often helpful to approach a specialist broker who can find the right lender for your business and its borrowing needs.
You will need a solicitor to act on your behalf. Lending terms can be onerous and it is important to take legal advice to understand them in the context of running the business day to day. A good lawyer will explain potential defects in your security to your lender and give solutions, rather than simply identifying problems.
Lenders will look at assets in the round and demand adequate security for the debt, like (in the case of companies) a debenture creating fixed and floating charges over all assets or a share charge from the shareholders over the borrowing entity.
Buying plant and machinery on hire purchase terms can make sense from a balance sheet point of view. Sophisticated creditors provide overdraft facilities (secured and unsecured), and legal charges can be left in place for short notice lending too. Collateral can also come from outside the business. Personal guarantees from beneficial owners or from trustees can be especially helpful for young businesses. Remember that trustees’ guarantees should be limited to trust assets and personal guarantees should be capped. Parent company guarantees can have implications for the wider group.
Ultimately a vineyard is a collection of assets and approaching it as a straightforward land purchase is not always the answer. Forsters’ Banking & Finance team knows about complicated real estate finance and asset-based lending. They will work closely with you and the Rural Land and Business team to understand the wider project. Combining these two elements allows us to advise on and structure the most suitable form of finance for you.
Expert Insights
“With rising temperatures, improved technology, and increasing demand for wine and land suitable for vines, there is a real sense that vineyards in the UK are now, for some, a viable option. C. Hoare & Co. has funded both acquisitions and serious investment in existing businesses. As a 12th-generation family business, we take a long-term view well beyond the usual rolling five-year strategy, and with the cost of capital at a near-historic low, the timing couldn’t be better. We recognise, however, that vineyards need the right team on the ground, as well as favourable soil, aspect and climate conditions – we all know it only needs one unexpected frost to wipe out an entire season. This places winemaking some way up the risk spectrum, and it won’t be for everyone, but we have been on journeys with a number of well-advised customers and feel we offer a flexible approach.”
Simon Collins – Head of Landed Estates Group, C. Hoare & Co.
A great bottle of wine is a wonderfully elegant, simple thing. But the process of making it is complicated. Small variables in soil, climate, management and markets can make the difference between a great year and an average one.
Buying a vineyard or winery
16 June 2022
News
Buying a vineyard or a winery involves acquiring a bundle of assets. Land is at the heart of the transaction, but you may also be buying crops, buildings, subsidies, goodwill, and intellectual property. Overlaid with that is how you are buying them – trading businesses may be sold as corporate transactions or “share sales” rather than a direct purchase of the underlying assets.
This article focuses on the assets you are acquiring and what terms your purchase contract might need to address.
Land
First and foremost, when buying either bare land to plant vines or an existing vineyard, you are buying land. Whether the soil is good for growing grapes is only one factor in determining the whether the land is right. Land is a complicated asset and when purchasing it for a vineyard you need to consider questions like:
Are there restrictions that could stop you growing vines on it? For instance, does it have the right planning consents for its current or proposed use? Can you sell the wine as well as make it, or host wine tastings and weddings?
Are there any third party rights that could affect operations? For example, is there a public footpath through the middle of the vineyard, or are there historic footpaths that could be registered in future?
Are you inadvertently taking on other liabilities you were not expecting, such as claims from the seller’s employees or environmental contamination?
What is planned in the area? For instance, is it next to a proposed new housing estate, or is HS2 or a new bypass going to plough through it?
Where does the water come from? If you have abstraction licences or a private water supply, are you able to use those for the business, and what obligations are you taking on?
Is there proper access to the public highway?
How much tax are you going to pay on the acquisition – what are the rates of SDLT and VAT?
Due diligence by your solicitor will answer these questions and more. Armed with this knowledge you can adjust the price, if necessary, and negotiate sensible provisions into the contract to protect you against the risks.
Expert Insights
“The purchase of a vineyard is a new opportunity for clients to find a real connection with land and a chance to create a legacy investment. The best sites are hard to find, hard to acquire and the journey is often full of headaches and heartaches – you have to be resilient. Vines are a long time in the ground, therefore it is important to take site selection and preparation very seriously!”
Rupert Coles – Director, Rupert Coles Ltd
Buildings and equipment
Turning to production, wineries need premises to lay down bottles, keep expensive kit, house people on site and, increasingly, entertain visitors and customers. From bats to asbestos, there are nuances with bricks and mortar. A good surveyor is important if you want to understand the potential liabilities and costs of upkeep or conversion of the farm buildings.
Complying with the planning regime is critical. Three areas come up most: use, development, and listed buildings. Whether or not the site has the right consents in place for your proposed use must be checked by your solicitor – the planning rules are not straightforward, and many wineries will require specific consents for retail and leisure.
Around 400,000 buildings in England are listed, including a surprising number of old agricultural barns. Carrying out unauthorised works to a listed building without consent is a criminal offence so cannot be taken lightly, and there is no limitation period for enforcement action, so you could have to put right unauthorised works carried out by the seller. In the most serious scenarios, you may decide that the seller has to apply for consent for unauthorised works themselves before completion, and you might keep back some of the sale price as a retention to deal with the risk.
Less severe but more common in draughty, old buildings are missing building regulations certificates and potential failure to comply with the Minimum Energy Efficiency Standards (MEES), where Energy Performance Certificate ratings of F or G render a building unlettable. Again, you need to understand how this will affect your use of the site prior to exchange.
Viticulture also requires specialist equipment, much of which is valuable and hard to remove. If it is included in the sale, a key point to check is whether the seller is able to sell you everything you think you are buying – nemo dat quod non habet, literally meaning “no one can give what they do not have”, is a long-established principle but one that can easily be overlooked where equipment is held on hire purchase terms. Assuming it is owned and included, there may be accountancy elements to address in the contract such as capital allowances elections, and having an experienced accountant to work with your lawyer is essential.
Crops
Most vineyards will be brought to the market in early spring and contracts are often exchanged in early summer – a quick sale where efficient solicitors have a sales pack ready can exchange in under a week, though most more substantial sales will take six to ten weeks. Most sales will then complete within a few months, either before or after the harvest.
If completion takes place before harvest, then the contract ought to deal with the grapes. Growing crops form part of the land and will be included in the sale by default; if they are, the seller may well require you to pay for them and any other items of what is known as “tenant right” based on a valuation at completion, particularly if completion is close to harvest.
It is more common for the seller to want to keep the current crop. They will then need holdover rights to harvest and store the grapes. A good contract will set out costs, liability and insurance in that period, together with a provision allowing you to keep or sell the grapes if the seller fails to remove them – otherwise you are left as an “involuntary bailee” and will have to follow a notice procedure before you can do anything with the grapes.
Many vineyards will be situated within a larger farm and not all the land will be under vine. The remainder, and indeed the field margins, will often be used for grazing or for more conventional arable crops. While the crops may be dealt with alongside the grapes, it is not unusual to purchase cattle or sheep with a farm and an ingoing valuation or price adjustment may be required for livestock and deadstock.
Growing grapes is still agriculture and the land is, therefore, eligible for agricultural subsidies. These can be lucrative but complicated, particularly as the Common Agricultural Policy fades away post-Brexit in favour of Environmental Land Management Schemes. If buying, you need to decide whether to take the entitlements to the subsidies, in which case the documents need to make provision for the transfer process and set out an agreed price.
The brand
Judging a book by its cover may be frowned upon, but judging a wine by its label is often wise. Name, logo, recipe and method are vital so they need to be properly registered, protected and enforced so no one else can steal or benefit from your intellectual property. You should also consider licensing your name and brand overseas. In the digital wild west the opportunities and pitfalls are bigger than ever.
The contract can cover whether any intellectual property is included, both in the strict sense of copyright in label design and registered trademarks, but also in the looser sense of farm names. It is not uncommon to ask a seller to stop using a farm name in future and to transfer website names and social media handles to you at the point of completion.
Finally, where you are buying the business, you also need to consider the goodwill and, potentially, any book debts. This angle is where it becomes important to use lawyers and agents with corporate experience, as the transaction will become more akin to a merger or acquisition than a single asset purchase.
Expert Insights
“The wine industry in the UK continues to grow and the demand for English wine and consequently vineyards continues to outstrip supply in key areas. A high profile product more often produced in well-established and attractive settings means there is increasing interest in the concept of wine tourism. Wine trails and tasting sessions alongside local, seasonal produce are becoming more mainstream options for tourists in the UK enabling well-advised and forward thinking operators to capitalise on this.”
Andrew Chandler – Head of Rural Agency, Carter Jonas
In summary
It will hopefully have become clear that there is no “standard” purchase – every acquisition will have terms unique to the property and business – and, as a result, you need a lawyer who can pre-empt each potential issue and offer you a solution. If you are interested in buying a vineyard or winery, please do get in touch.
A great bottle of wine is a wonderfully elegant, simple thing. But the process of making it is complicated. Small variables in soil, climate, management and markets can make the difference between a great year and an average one.
Forsters are delighted to be launching our Vineyards & Wineries practice. The cross-departmental team draws upon our strengths from across the firm, a combination of expertise that is rare if not unique in the market. The increasing number of vineyards we look after complements our exceptional book of landed estates, and is testament to our ability to look after landowning clients, whatever their business and whatever challenges they face.
The Register of Overseas Entities – 5 steps lenders should be taking now
26 April 2022
News
There has been a plethora of recent articles about the Economic Crime (Transparency and Enforcement) Act 2022 (the “ECA”) and its provisions which deal with the register of overseas entities (the “Register”), but given that the Register is not yet in force and there is no suggestion as to when it will become effective, how concerned should lenders be?
Is it really worth spending time and effort considering the new regime when we don’t yet have all the details as to how it will work in practice?
The simple answer to this is yes. We know that the Register is on the legal horizon and given the speed with which the ECA received Royal Assent (after it was essentially written off last year), we can expect that the setting up of the Register will be fairly high on the list of government priorities. On this assumption, it would be sensible for lenders to take certain steps now to ensure they are adequately protected when the Register takes effect.
So, what are the five main steps that lenders can take now, before the Register is in place?
Get up-to-speed on the relevant provisions of the ECA. Understand what the Register is intended to achieve, to whom it will apply and how it will work. Read our client briefing note on how the Register will affect lenders and get in touch with your usual Forsters contact if you would like specific training or have any questions about the Register.
Be mindful of your current clients and security portfolios already in place. Where an overseas entity acquired UK property before 1 January 1999, it will need to apply for registration once the Register opens. Such entities will have six months to apply for registration.
Consider whether it would be sensible to inform any of your clients about their potential registration requirements. Although ensuring registration compliance is not a lender’s responsibility, it may be prudent to encourage certain clients to begin collating the information that will be required for registration.
Ensure that the documentation for facilities which are currently at the negotiation stage include the necessary comfort and protections that you, as a lender, will require when the Register takes effect. You will want to ensure that the overseas entity has a contractual obligation to apply for registration within the required time period, undertakes to complete the annual updates as required and sends evidence to you that they have so complied.
Ensure that you periodically check to see whether a date has been announced upon which the Register will open. We will provide an update on this, but it is also likely to be published in the press and on the gov.uk website.
Disclaimer
This note reflects our opinion and views as of 26 April 2022 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.
Economic Crime (Transparency and Enforcement) Act 2022: What does the Register of Overseas Entities mean for lenders?
7 April 2022
News
The ECA received Royal Assent on 15 March 2022 and covers three main areas – the creation of the Register, amendments to the unexplained wealth orders regime, and amendments to the sanctions regime. This note provides a brief overview of the Register, how lenders will be affected, and some practical steps lenders may wish to take.
UK entities are already obliged to disclose their beneficial ownership information pursuant to the PSC regime. However, the ECA requires Overseas Entities which have acquired a Qualifying Estate in the UK since 1 January 1999 to register their details and the details of their beneficial owners (essentially any legal person who can exercise control or influence over the Overseas Entity) on the Register.
Any Overseas Entity that intends to acquire a Qualifying Estate is also required to register.
(There is no need for an Overseas Entity to actually own the Qualifying Estate before registration; any Overseas Entity may apply to join the Register.)
All Overseas Entities holding a Qualifying Estate need to apply for registration on the Register within the Transitional Period. Failure to comply with the registration requirements by the end of the Transitional Period is a criminal offence.
Upon registration the Overseas Entity will be allocated an ID number and provided with evidence from Companies House confirming their registration. Companies House has not yet given details as to how this will work in practice.
The information included on the Register must be updated annually (or confirmation provided that there is no update). Failure to comply is a criminal offence.
What does this mean for UK land transactions?
During the Transitional Period the Land Registry must place a restriction on the title to any Qualifying Estate owned by an Overseas Entity and acquired on or after 1 January 1999. This restriction will take effect after the Transitional Period and will prevent the registration of any Relevant Disposition of Land unless the Land Registry has seen evidence that entry to the Register has been made, or that an exemption applies. This means that legal title will not pass unless the restriction on title has been complied with.
What does this mean for lenders?
The main focus for lenders is the potential impact of the ECA on (i) the registration by the Land Registry of a legal charge granted over a Qualifying Estate; and (ii) a lender’s ability to enforce such a charge.
The grant of a legal charge: is a Relevant Disposition of Land and as such, in order to register the legal charge at the Land Registry, the Overseas Entity which holds the charged Qualifying Estate will need to be registered on the Register.
Enforcement of registered legal charges: the ECA provides a number of situations in which a Relevant Disposition of Land will be registered by the Land Registry, notwithstanding the non-registration of the relevant Overseas Entity on the Register. These include where a secured creditor (or a receiver appointed by the secured creditor) exercises its power of sale under a registered legal charge and a disposition made by a specified insolvency practitioner in specified circumstances (although the actual meaning of “specified insolvency practitioner” and “specified circumstances” are yet to be provided).
The ranking of legal charges could also be affected by the Registrar of Companies’ ability to put in place a charge securing payment of financial penalties imposed for non-compliance with the ECA. The details of such a charge and how it will rank against other charges will be set out in regulations still to be published.
At present the legislation does not refer to any requirement to register legal charges over a Qualifying Estate against the Overseas Entity at Companies House.
What steps need to be taken?
Where an Overseas Entity is the borrower or the grantor of a legal charge over a Qualifying Estate, the “compliance with laws” clause in the finance documents is likely to cover its obligations under the Register, but specific provisions should also be included to focus borrowers’ minds on the need for compliance.
The required steps will depend on when the legal charge was or will be granted.
Scenario 1: Legal charge already registered at the Land Registry (since 1 January 1999)
Lenders should be mindful of which of their clients and security arrangements will be affected by the new registration requirements and consider whether to remind any of their clients about the registration obligations under the ECA.
Scenario 2: Legal charge to be entered into prior to the Transitional Period
Lenders should ensure that appropriate obligations are included in the finance documents, for example, undertakings that the Overseas Entity will apply to be duly registered within the Transitional Period, comply with the annual update requirements and provide the lender with evidence of such registration and compliance.
The ability to grant a Registrable Lease should also be considered, for example, by including an undertaking that where such a lease is to be granted to an Overseas Entity, they will apply to be duly registered within the Transitional Period.
Scenario 3: Legal charge to be entered into during or after the Transitional Period
A legal charge is a Relevant Disposition of Land and so can only be registered at the Land Registry if the Overseas Entity is registered in the Register.
Ideally, the Overseas Entity in question should be registered in the Register before the finance documents are entered into, but in any event, the finance documents should include a provision, such as a condition precedent, requiring the Overseas Entity to be registered in the Register before a drawdown request is made (and within the permitted timeframe), obliging the Overseas Entity to comply with the annual update requirements and requiring the Overseas Entity to provide the lender with evidence of such registration and compliance.
The ability to grant a Registrable Lease should also be considered, for example, by including an undertaking that such a lease will only be granted to an Overseas Entity which is duly registered in the Register.
GLOSSARY
Some of the terminology used in this article explained:
ECA: the Economic Crime (Transparency and Enforcement) Act 2022.
Overseas Entity: any body corporate, partnership or other legal entity which is governed by the laws of a country outside of the UK. This therefore catches entities based in the Channel Islands and the Isle of Man.
Qualifying Estate: a freehold estate in land, or a Registrable Lease.
Register: the register of overseas entities created pursuant to the ECA and to be managed by Companies House.
Registrable Lease: a leasehold estate in land granted for a term of seven years or more. (Note that this is not the same definition as used in the Land Registration Act 2002).
Relevant Disposition of Land: a transfer of a freehold interest, the grant or assignment of a Registrable Lease, and the grant of a legal charge.
Transitional Period: six months from the date of the registration requirements coming into force (a commencement date for these provisions under the ECA has not yet been stipulated).
Disclaimer
This note reflects the law as at 7 April 2022. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.