Tuesday, 29 November 2016

Transparency in land ownership: consultation on controlling interests in land

Corrour Lodge

The Land Register and the Register of Sasines tell you who the legal owner of a piece of land is but don't tell you if there's someone else behind the scenes who pulls that owner's strings. Thus, you don't know from looking at the Registers who controls a company which is the legal owner of land. And even when the legal owner appears to be a person, you don't know that he's not just a nominee for someone else who actually calls the shots.

When I used to be a rural property lawyer, I never found this to be an issue in practice: everybody knows that the owner of Killilan Estate, Smech Properties Ltd, incorporated in Guernsey is the Sheikh Maktoum of Dubai and everybody knows that The Corrour Trust is Lisbet Rausing. These are not secrets and even beyond these high-profile cases, I was always surprised how, in practice, everybody seemed to just know who owned what, often leaving us lawyers, who were supposed to know about that sort of thing, bringing up the rear. Be that as it may, Part 3 of the Land Reform (Scotland) Act 2016, gave the Scottish Government power (indeed, obliged it) to make regulations about public disclosure of persons with "controlling interests" in (or over) landowners. The Scotgov is currently consulting about the detail of how to implement this. The consultation is here and runs until 5 December so there's not much time left!      

This is my response to the consultation (If you get bored, there's a picture right at the end which sums it up):-

Chapter 1: Transparency of land ownership and controlling interests in Scotland

1. Do you have any comments about making information about persons with controlling interests in owners and tenants of land available?

The way the questions are ordered didn't allow me to express my views in a very logical order so I'll use this box to summarise them:-

1. The Register of Controlling Interests should be integrated with the Land Register such that disclosure of a controlling interest (or confirmation that there isn't one) is simply part of the information contained in the Land Register, sitting next to the name of the legal owner.

2. Registration in the LR will be the trigger for disclosure of controlling interests. It's not realistic to expect people to be aware of and comply with a duty to disclose information outside the context of a trigger event like registration in the LR when there will be a form to fill in which can focus attention on the matter by asking the right questions and parties are likely to be being advised by knowledgeable professional advisors.

3. As for changes of controlling interest between Land Registrable transactions, again it's not realistic to expect people to remember to do this so the Keeper should be under a duty to write out to legal owners periodically asking them to confirm the information held about controlling interest is still correct. This, I gather, is what happens under the Person of Significant Control regime with UK companies.

4. Integrating registration of controlling interests (CI) with the Land Register will have the benefit that the register of CI is map based. A register concerned with land which is not map based is, for all practical purposes, useless.

5. As for the objection that registration of CI would be delayed by the completion of the Land Register, controlling interest and legal title are two sides of the same coin. It's illogical in principle and unhelpful in practice to progress one and not the other. If there's a concern about timescales, accelerate completion of the Land Register.

6. Finally, the thing that would do most to enhance transparency would be to make searching the Land Register (including information about controlling interests) FREE!

Chapter 2: Defining a controlling interest and who is a person with a controlling interest in a land owner or tenant

2. In your view, taking in to consideration the contents of this chapter and the associated annex C, what are the key considerations that Scottish Ministersshould take in to account in defining a "controlling interest" or "persons with controlling interests in land owners and tenants" for the purposes of these regulations?

Landowners which are UK companies, LLPs or Societates Europaeae are already covered by the Person of Significant Control regime in Pt 21A of the Companies Act 2006 so should be exempt from the proposed register in order to avoid double reporting.

For other bodies, in the interests of consistency and simplicity (avoiding a multiplicity of different disclosure regimes), use the same definitions in the Money Laundering Regulations 2007 except that, for trusts, it is control rather than benefit which is important for present purposes. Therefore the default rule should be that it's the trustees rather than the beneficiaries who are to be disclosed unless a beneficiary has power to dismiss or appoint trustees or de facto exercises control over the trustees (which would likely be the case in the situation of trustees holding property for a partnership).

For foreign corporates (if they are in any different position from other bodies governed by the ML Regs), it would seem most sensible to await the outcome of the Government's discussions on this as referred to in para. 16, page 8 of the consultation.

Public sector bodies and charities should be exempt so as not to burden them with excessive regulation.

It's really important to harmonise with other regimes, not to duplicate them and not to have differences in Scotland from rUK because this acts as a disincentive to doing business in Scotland.

Chapter 3: Scope
 
3. In your opinion, should the regulations apply to all types and uses of land?


Yes

4. Do you think that particular categories of land should be exempt?

No

5. If YES, please give details.

N/A

6. In your view, for the purposes of these regulations, should "land" have the same meaning used for Land Registration purposes (outlined above)?

Yes

7. In your opinion, should the regulations also apply where the proprietor of land that is not recorded in the Register of Sasines or registered in the Land Register because either: (I) The property was acquired prior to the Register of Sasines commencing in 1617; or (II) they have acquired a personal right to property but have not yet registered the deed in their favour in the Land Register?

No

Please give details.:

There are many situations where people acquire personal rights to property (situation II. above) in which it is not realistic to assume they will remember (or even be aware of the requirement) to register a change of controlling interests. For example, following a death with a low value estate where solicitors are not involved or changes in a partnership. Therefore, registration in the Land Register (whether in situation I. or II. above or for any other reason, typically a sale) should be the
trigger for disclosure of controlling interest. The parties to the transaction can have their attention drawn to the issue of control by a question added to the application form for the LR and they will usually be being advised by lawyers where the LR is concerned. Indeed, for that reason, the Register of Controlling Interests should be simply a part of the Land Register (see Qs 11, 12 & 13 below).

8. In your opinion, should the regulations apply where a tenant in a high value lease that is not a long lease (a lease of 20 years or fewer) falls within the definition of persons with controlling interests in land owners and tenants?

No

Please give details.:

Because of difficulties in defining what is or is not a "high value lease". And because the only practical way to run the Register of Controlling Interests is for it to be a part of the Land Register and <20yr leases don't get registered in the LR.

9. In your opinion, are there instances where natural persons who own land have an undisclosed relationship with another person who has a controlling interest in land? For instance if the land in question is an asset of a partnership or trust, or part of a trust arrangement?

Yes

Please give details.:

You've answered your own question: when the land in question is an asset of a partnership or trust. It's very common to find family farms registered in the name of, for example, grandfather when he is actually holding as trustee for a family partnership from which he has long since retired and the controlling interest is now the current partners who are his grandchildren. (Note that the grandchildren are not trying to conceal anything: it's just that updating the property title to substitute themselves for their grandfather is not high on their list of priorities while he is still alive and can do their bidding by signing any necessary documents relating to the property.)

10. In light of the contents of this consultation, and this chapter in particular, can you foresee any ways in which the obligations under these regulationscould be avoided, and, if so, what could the Scottish Government do to combat this?

Yes

Please give details.:

As corporate disclosure requirements increase, it's conceivable that people who take title to land in the name of corporate vehicles for motives of secrecy (which I don't believe is nearly as common as made out in some quarters - it's almost invariably motivated by tax avoidance which, as the consultation notes is not within the competence of the Scottish Parliament) may move to taking title in name individuals as their nominee. That's a form of trusteeship but it emphasises that, to close loopholes, registration of controlling interests must apply to individuals as well as to corporates and trusts. That means it applies to every single owner in Scotland and therefore every single property.

Chapter 4: Where the information should be held and what information should be disclosed

11. In your opinion, should a new register of persons with controlling interests in land owners and tenants be created?

No

12. What would the advantages be?

None. The Register of Controlling Interests should be a part of the Land Register. See 13. below.

13. What would the disadvantages be?

Yet another register added to the increasingly long list of property registers! (Crofts, SSSIs, community interests, applications to buy abandoned land to name but a few) We should be moving in the direction of a "one stop shop" which is what I think the ScotLIS is supposed to be about.

Registration of controlling interests should be integrated with the Land Register such that the identity of controlling interests (or confirmation that there aren't any other than the legal owner) simply becomes part of the information disclosed on the LR sitting next to the name of the legal owner.

Registration in the LR (whether by a transaction with the land or by voluntary or Keeper induced registration) will be the trigger for the entry of controlling interest information. As regards properties which won't come on to the LR before 2024, it's hopelessly unrealistic to imagine that *every* unregistered landowner (because remember every landowner is potentially a trustee or nominee for a controlling interest) will even be aware of, never mind comply with, a duty to disclose a controlling interest or, as the case may be (more usually), confirm there isn't one. In practice, the Keeper would need to write out to people appearing to be the owners of property from the Sasine search sheets asking them about controlling interests.

Another aspect of registration of controlling interests is that it's essential that it's map based or it's of absolutely no use at all if it's designed to help people find out who they need to talk to about, for example, trees by a road which are reducing sight lines as per the example given on page 9 of the consultation.

If the Keeper is going to write to owners appearing on Sasine search sheets and draw maps of their maps of their land, then she might as well be registering these properties in the Land Register while she's at it.

Registration of legal title and controlling interest are two sides of the same coin and it seems ludicrous and wasteful, not to mention confusing to the sort of lay person the process is trying to assist, to progress one and not the other at the same time. The two should be going hand in hand.

(You could turn this round another way and say that I wouldn't object in principle if the proposal were to abolish the Land Register and include information about legal title in a map based new Register of Controlling Interests!)

14. In your view, in addition to the names of "persons with controlling interests in land owners and tenants" should other information about them bedisclosed?

Yes

15 If YES, how would disclosure of that information fulfil the regulations' aim(s) (as per chapter 1 and your answer to question 1)?

The whole thing is surely pointless if you don't include contact information - at least an address!

16. If NO, why not?

N/A

17. In your view, should information about the nature and extent of a person‘s "controlling interest" be disclosed?

Yes

18. In your view, should the nature and extent of a person‘s "controlling interest" be disclosed on a public register?

Yes

Please give details.:

Not quite sure what the difference between Q.17 & 18 is but responding to both, "Yes" to nature but "No" to extent.

I suppose it could help people engaging with "controllers" to know if they are a director, majority shareholder, trustee etc. but I don't think they need to know the full chapter and verse about how many shares etc. they hold if that information doesn't otherwise require to be disclosed (e.g. under UK company law). As long as they make themselves known and available, "controllers" are still entitled to their confidentiality and privacy.

19. If YES, how would this information fulfil the purpose of the regulations' aim(s)?

See details under Q18 above.

20. If NO – why not? Please give details.

See details under Q18 above.

21. Thinking about the information which in your view should be disclosed, are you aware of any potential sensitivities relating to this?

Yes

Please give details::

Commercial sensitivity & confidentiality, ordinary "domestic" considerations of privacy.

22. If YES – in your view what are the advantages of keeping this information up to date?

Not sure how this question fits in to this sequence (YES to what?) but in general terms, if you are going to require disclosure of something, the information ought to be kept up to date.

23. If NO – why not? Please give details.

Not sure how this question fits in to this sequence (NO to what?)

24. In your view, are there instances in which the information about the nature and extent of a person‘s "controlling interest" is commercially sensitive and should not be revealed?

Yes

25. If YES, please explain why you think that this information should not be revealed?

Surely there must be a default presumption in favour of people being entitled to confidentiality and privacy of their affairs unless a public interest case to the contrary has been made. See answer to Q18.

26. If NO – why not? Please give details.

N/A

Chapter 5: The duty to provide the information

27 In your view, should a duty to provide information about persons with controlling interests in land owners and tenants apply to land owners and tenants with titles in the Land Register or Register of Sasines and:

Land owners and tenants where the property was acquired prior to the Register of Sasines commencing in 1617

Yes

Land owners or tenants who have acquired a personal right to property, but have not yet registered the deed in their favour in the Land Register

No  

Tenants in a high value lease that is not a long lease (a lease of 20 years or fewer)

No

28. If you chose NO, why not?

For reasons already given in response to Qs 7 & 8.

29. If YES, in your view what are the advantages of this arrangement?

N/A

30. If YES, in your view what are the disadvantages of this arrangement?

N/A

31. In your view, should a duty to provide information apply to the "person with the controlling interest"?

No

32. If NO, why not?

Because the duty should be on the legal owner at the point of application for registration of his title (or another transaction) in the Land Register for the reasons already given in Qs 12 & 13 above.

33. If YES, in your view what are the advantages of this arrangement?

N/A

34. If YES, in your view what are the disadvantages of thisarrangement?

N/A

35. In your view or experience, are there parties who serve as intermediaries between registered proprietors and persons with a controlling interest in land?

Yes

36 If YES to Q35, in what scenarios do you think that there are parties who serve as intermediaries between registered proprietors and persons with a controlling interest in land?

Whenever anybody needs a professional advisor.

Note that "intermediaries" makes it sounds like the stuff of Panama Papers type conspiracy theories. The reality is much more humdrum and the "intermediaries" are simply the professional advisors of both the legal owner and the controller.

Consistently with this, I totally disagree from my experience as a lawyer acting for off-shore landowners with the statement in para. 2 on page 27 of the consultation:- "where there are complex ownership structures lying behind a legal owner, such as a chain of companies owned in offshore jurisdictions, it may not be possible for the registered proprietor to obtain information about persons with controlling interests". The legal owner *always* knows who its controller is and vice versa.

37. If YES, in what capacity are there parties who serve as intermediaries between registered proprietors and persons with a controlling interest in land?

Typically lawyers, land agents and accountants.

38. In your view should a duty to provide information apply to such intermediaries?

No

39. If NO, why not?

It is completely contrary to principle to make an agent liable for his principal.

40. If YES, in your view what are the advantages of this arrangement?

N/A

41. If YES, in your view what are the disadvantages of this arrangement?

N/A

42. In your view, should the duty to disclose information about any person with a controlling interest in a land owner or tenant apply either when a person is a person with a controlling interest in a land owner or tenant when the regulations come into force, or becomes a person with a controlling interest in a land owner or tenant when the regulations are in force?

No

43. If NO, why not?

I'm not sure I understand the question but the trigger for first disclosure should be the first registration in the Land Register after the regulations come in to force.

As for changes of controlling interest between transactions registrable in the Land Register, I don't believe it's realistic to expect partnerships and trusts to remember to notify these. Therefore, I would suggest the Keeper be obliged to write out to the legal owner and/or controlling interest of each registered property periodically to ask them to confirm there has been no change (or, as the case may be, for any new information about controlling interest to be disclosed). This I believe is how Companies House operates the new Confirmation Statement (including info about persons with significant control) scheme. Civil penalties or criminal offence (no strong views which) for failure to respond to such a request for information.

44. If YES, in your view what are the advantages of this arrangement?

N/A

45. In your view, should a civil penalty be imposed for failure to comply with any of the duties contained in the regulations?

Yes

Please give details:

See response to Q43 above.

46. In your view, should failure to comply with any of the duties contained in the regulations be a criminal offence?

Yes

Please give details:

See response to Q43 above.

47. In your view, should an application for land registration be rejected if the applicant fails to supply information about any "person with controlling interest"?

Yes

Please give details:

This follows from integrating disclosure of controlling interests with the Land Register in the manner I'm suggesting.

48. In your view, should an application for land registration be rejected if the applicant fails to certify that no such "person with controlling interest" exists?

Yes

Please give details:

This follows from integrating disclosure of controlling interests with the Land Register in the manner I'm suggesting.

49. In your view, taking in to consideration all of the sanctions and enforcement options set out in this chapter, what mechanisms would be most appropriate to enforce the duty to provide information? Please explain your answer.

The primary sanction will be that an applicant for registration in the Land Registration will be obliged to answer a question about any controlling interest behind the applicant (i.e. say who it is or confirm there isn't one) or else their application will be rejected. There is already a criminal offence of making false statements in connection with the LR (LR Act 2012, s112).

For "inter-transactional" changes of controlling interest, the only sanction can be a criminal offence (or civil penalty, don't mind which) for failure to respond to the Keeper's enquiries (see my answer to Q43).

50. In your view, are there instances in which there should be exemptions?

No

51. If NO, why not?


Can't think of any circs in which people should be excused compliance with the regulations (apart from the Procurator Fiscal/Lord Advocate's usual discretion not to prosecute when it's not in the public interest).

I've never encountered any circumstances in which people may be placing themselves at "serious risk of violence or intimidation" by coming out from behind a corporate legal vehicle. It's just not a syndrome I recognise at all.

52. If YES, in your view what is the justification for such exemptions?

N/A

Chapter 6: Assessing impact

53. Please tell us about any potential impacts, either positive or negative, that you consider that the proposals in this consultation may have in respect of equality issues. Please be as specific as possible.

None I can think of.

54. Please tell us about any potential costs and burdens that may arise as a result of the proposals within this consultation, and any increase or reduction in the burden of regulation for any sector. Please be as specific as possible.

Parliament should take evidence from people qualified to speak about the practical impacts of the introduction of the Persons of Significant Control regime for UK Companies (e.g. Companies House staff, corporate lawyers or accountants).

55. Please tell us about any potential impacts, either positive or negative, upon the privacy of individuals that may arise as a result of any of the proposals contained in this consultation. Please be as specific as possible.

Parliament should take evidence from people qualified to speak about the practical impacts of the introduction of the Persons of Significant Control regime for UK Companies (e.g. Companies House staff, corporate lawyers or accountants).

56. Please tell us about any potential impacts, either positive or negative, that you consider that any of the proposals in this consultation may have on the environment. Please be as specific as possible.

None I can think of.

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