More than five years after the initial consultation and following a delay due to the Coronavirus pandemic, the Register of Persons Holding a Controlled Interest in Land ("the RCI") became operational on 1 April 2022.
Why is Scotland getting another new Register?
As we reported previously, for a variety of different reasons, it can be helpful (or necessary) to know who owns or controls a particular building or piece of land.
However, simply looking at the title deeds or the publicly available property registers won't always give a sufficiently clear answer about who ultimately controls the land or building and who makes the decisions in respect of it. It is to this end that the Land Reform (Scotland) Act 2016 (Register of Persons Holding a Controlled Interest in Land) Regulations 2021 ("the Regulations") were passed, their primary aim being to improve transparency when it comes to land ownership in Scotland.
Key concepts and terms
The Regulations apply to certain categories of owners of land and tenants of registrable leases (leases of over 20 years) in Scotland where there is someone else with significant influence or control over the decision making in relation to that land and that controlling interest is not transparent.
Key to understanding the Regulations is getting to grips with the new terminology:
- An Associate is the term used for the individual or entity who, in terms of the Regulations, is associated with and has the right to exercise, or actually exercises significant influence or control over an owner or registered tenant's dealings with land; and
- A Recorded Person is the term used for a registered owner or tenant (of a lease of over 20 years) who has an Associate, and who as a result must register details in the RCI.
The concepts of control and significant influence are also key. The Regulations provide that a reference to control is a reference to where a person can direct the activities of another and a reference to significant influence is a reference to where a person is able to ensure that another person will typically adopt the approach that the person desires.
Each entry in the RCI will be specific to a property in respect of which there is some sort of controlling interest and will contain information about the Recorded Person and any Associates.
Who will the Regulations affect?
Not all owners and registered tenants will require to make an entry in the RCI. The Regulations provide for five categories where an owner or registered tenant may be in scope. For each of the five categories the Regulations state the conditions and exceptions that make someone an Associate, however the provisions are complex and often deciding whether there is an Associate (and thus reporting obligations under the RCI) is not a straightforward task.
The five categories are:
- Where the owner or registered tenant is an individual and there is a person (the Associate) who has entered into a contract or other arrangement with that individual so that the land is owned or leased on the person's behalf (e.g. the individual has acquired the property as a nominee for someone else (the Associate)) or so that they have the right to exercise, or actually exercise significant influence or control over the individual's dealings with the land.
- Where land is held by or on behalf of a partnership. There are complex rules for establishing Associates where land is held by or on behalf of a partnership however broadly all general partners of the partnership who are not named on the title or lease must be registered as Associates in the RCI in addition to any individual who has the right to exercise, or who actually exercises, significant influence or control over the partnership.
- Where land is held by a trustee, or otherwise on behalf of a trust. Again, the rules for establishing Associates where land is held on behalf of a trust are complex however in general any trustees of the trust who are not among the trustees named on the title or lease must be registered as Associates in addition to any individual who has the right to exercise or who actually exercises significant influence or control over the trust.
- Where land is held on behalf of an unincorporated association. Any person who is responsible for the general control and management of the unincorporated association but who is not registered as an owner or tenant of the land must be registered as an Associate. This will be for example the chair, treasurer or secretary of the unincorporated association.
- Where the owner or registered tenant is an Overseas Entity. Here Associates are those who hold more than 25% of the voting rights in the Recorded Person, or those who hold the power to appoint or remove a majority of the board of directors of the Recorded Person, or, those who otherwise have the right to exercise or who actually exercise significant influence or control over the decision making of the Recorded Person, particularly in respect of its dealings with land.
It is worth remembering that even where the owner or registered tenant falls within one of the 5 in-scope categories, there may still be no obligation to report information to the RCI. If, after applying the various tests in the Regulations, it is established that there are no Associates then there will be no obligations under the Regulations.
Who will the Regulations not affect?
The RCI is not intended to duplicate information held publicly elsewhere and so where the owner or registered tenant is subject to another transparency regime, they do not need to make a submission to the RCI. This includes:
- Charitable Incorporated Associations;
- All entities who must register in the People with Significant Control Register, for example UK companies, UK LLPs, Scottish Limited Partnerships and Scottish general partnerships where each of the partners is a limited company;
- Public Authorities (who are subject to the freedom of information regime); and
- Building Societies.
This exemption applies no matter what capacity the exempt entity holds title in. For example, a UK company that holds title to a property as trustee or on behalf of a partnership will not be subject to the RCI disclosure requirements.
It is worth noting that although such entities cannot be a Recorded Person in terms of the Regulations, they can be an Associate and as such be required to comply with the duties imposed on an Associate.
As mentioned above, at the moment overseas entities are within the scope of the RCI. It remains to be seen whether in time this will change given the duplication of reporting obligations which such entities will face with the introduction of the UK Register of Overseas Entities (in terms of the Economic Crime (Transparency and Enforcement) Act 2022).
What duties are there under the Regulations?
Both Recorded Persons and Associates have duties under the Regulations.
- The Recorded Person
Where the Regulations are engaged (in other words if there is an Associate), the Recorded Person must send notice to the Associate and submit for inclusion in the RCI certain prescribed details about themselves, the property and their Associates. This information must be submitted to the RCI within 60 days of the association beginning.
The Regulations are retrospective which means that any existing owners and registered tenants who have Associates will, from 1 April 2022, have a duty to register the required information.
The Recorded Person also has on-going duties to update the RCI when someone ceases to be an Associate, or when they sell their interest in the property and therefore cease to be a person to whom the Regulations apply, or when any information held on the RCI changes.
- The Associate
Associates have a duty to respond to requests made by the Recorded Person to verify the information that the Recorded Person is submitting to the RCI and to intimate to the Recorded Person that they are an Associate if they have not received a relevant notice. In addition, if any of the required details for the RCI change, or, if the Associate ceases to be an Associate they must let the Recorded Person know.
What happens if you don't comply?
Failure to comply with the duties under the Regulations will be a criminal offence with the penalty being a fine of up to £5,000.
Although the Regulations came into force on 1 April 2022, there is a one year transitional period during which the penalties for failure to comply will not be applied.
Take action now
In many cases, the person who owns or tenants land in Scotland will be the person who controls it and so the Regulations will not be engaged. In others, entities will be removed from the scope of the Regulations as a result of being subject to an existing transparency regime.
Where however the Regulations are engaged (most likely trusts, partnerships and overseas entities who own or lease land in Scotland) they are complex and with criminal sanctions, the consequences of non-compliance are serious.
Those dealing with property in Scotland need to take note now and be aware of the significant implications that the introduction of the RCI has. Whilst the 12-month transitional period is welcome, owners and tenants (of leases of over 20 years) of land in Scotland need to familiarise themselves with the detail of the Regulations and take time to understand how they may be affected.
Further guidance on the Regulations issued by Registers of Scotland can be found here. If you think that you may be affected and would like further advice, please get in touch.
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