Insights

Registers of Scotland have introduced a new Land Register – the Register of Persons Holding a Controlled Interest in Land (or the “RCI”) – which went live on the 1 April 2022. This is an additional register, sitting alongside the Register of Sasines (which is being phased out) and the Land Register of Scotland, with the aim of identifying those individuals, who cannot be identified through the existing land registers, who have a “significant influence or control” over the named owner or long tenant (20+ years) of the land or property in question. The aim of the RCI is to improve transparency in who actually owns or tenants Scottish land.

While, especially given the recent headlines regarding the sanctioned Russian oligarchs and the ownership of certain properties being held by anonymous offshore companies, one might think it is only these situations which the RCI is designed to capture, it is in fact much broader than this. For example, farming and small business partnerships, local and family trusts and even village hall societies and sports clubs who own or long term tenant land and property could be in scope, and may need to make submissions to the RCI.

The RCI went live on the 1 April 2022, with a 12 month grace period for all those with a relevant interest to be registered in the new register. After this time, penalties for failure to do so will become enforceable. It is therefore important that landowners and tenants with a tenancy of a duration of 20 years or more check how their title is held, whether this is an interest which would be caught by the RCI, and if there is anyone whose interest would be required to be registered in the RCI.

What is a Controlled interest in Land?

The RCI is intended to disclose the various entities that actually exercise control over the person or institution listed as the owner or tenant on the Land/ Sasines Register. Therefore, it is important to define what actually constitutes a controlling/ significant influence in land.  

The RCI is introduced by the Land Reform (Scotland) Act 2016 (Register of Persons Holding a Controlled Interest in Land) Regulations 2021, as amended by the Land Reform (Scotland) Act 2016 (Register of Persons Holding a Controlled Interest in Land) Amendment Regulations 2021 (hereinafter referred to together as the “Regulations”).

The Regulations define ‘control’ as the ability of a person to “direct the activities of another”, while ‘Significant Influence’ is defined as the ability of “a person to ensure that another person will typically adopt the approach that person desires. For the purposes of the Regulations, these definitions refer to decision making power relating to land in Scotland, be it regarding the disposal, leasing or change of use of said land.

Who Will the RCI Apply To and When Do they Need to Make A Submission?

The new Regulations are wide ranging and will affect a whole range of people/entities, from offshore shell companies to local church groups. It will require the disclosure of information about persons or bodies which have control (known as “Associates”) over the owner or tenant of land (known as “Recorded Persons”) by means of the mere existence of the following types of association:

Contractual or other such arrangement

An entry will have to be made to the RCI where, by virtue of a contractual or similar arrangement between two persons, one of the parties grants the other influence or control over significant decisions in relation to the land. For example, A owns a shop and enters into a contract with B, which requires that A sell a certain set of products, maintain and present the shop according to a specific set of rules. B would have to be registered on the RCI as an Associate by A, who would be classed as a Recorded Person on the RCI by virtue of their ownership, as B would be exerting a degree of control over how the shop property was to be used.

However, not every contractual relationship relating to land will necessitate an application to the RCI. Now, say A owned a shop, but wished to expand into the neighbouring property. A enters into a contract with B, where B pays towards the purchase price of the additional property. The contract between A and B does not specify anything about control, and B is not granted the power to make any decisions that would influence the use of the property.  In these circumstances, B would not have any influence over the use of the land and would therefore not have to register on the RCI.

Partnerships

The same rules apply to partnerships in Scotland. Take, for example, a veterinary practice which has been set up as a partnership. A, B and C are partners and they are listed as owners of the premises for the partnership on the Land Register. All three would be considered as Recorded Persons under the new regulations. However, there is a fourth partner, D, who joined the firm after the land was purchased who is not listed on the Land Register. D, as an equal stake partner, has significant control over the decisions of the business, including the use of the aforementioned property, governance and the ability to appoint or remove partners. Therefore, D would have to be registered by A, B and C as an Associate on the RCI.

Trusts

Similarly, certain members of, or parties to, a trust will have to register with the RCI. A and B are trustees of a trust which owns property, and they are named owners of the same on the Land Register as Recorded Persons. C is not named on the Land Register, however, they do have the right, by virtue of the trust, to appoint or remove trustees. Owing to this ability to alter the membership of the Trust, and therefore the ownership of the property itself, A and B would have to register C on the RCI as an Associate.

Furthermore, if C were not an individual, but rather another entity e.g. a body corporate, A and B would have to register anyone who has control of entity C, who is not otherwise exempt, in the RCI as Associates.

Unincorporated Bodies (Sports Clubs, Associations etc.)

As with the aforementioned, the same rules apply to unincorporated bodies. Picture a village hall association, whose property is held by trustees A, B and C, who are in turn named in the Land Register. These three would be as Recorded Persons. However, the association is also run in part by a committee of office bearers. This group is not registered on the Land Register, however, they play a key role in the management and running of the association and the use of its property. All of the Recorded Persons (A, B and C) would have to therefore record all of the office bearers in the RCI as Associates.

Overseas Entities

For many, this is the real target of the new regulation, revealing previously hidden groups, which have large amounts of control over land in Scotland. The provisions detailed below largely replicate the existing rules around persons with significant control (PSC) under the Companies Acts.   BCD Worldwide Limited is an overseas entity registered in the Cayman Islands. It is registered in the Land Register of Scotland as the owner of a property in Scotland, making it a Recorded Person. However, BCD Worldwide Limited has two board members, each with voting rights in excess of 25%. With such a share of voting rights, these board members are able to exercise significant control over BCD Worldwide Limited and, in turn, the property it owns. BCD Worldwide Limited would therefore have to register both board members as Associates on the RCI. This, in essence, applies the UK regime for PSC to entities which exist outside of the UK regulatory structures.

What Do You Need To Do?

The above is not an exhaustive list of the possible circumstances which may give rise to the existence of a Recorded Person/Associate relationship as defined within the regulation. But all Recorded Persons with an Associate have a duty to register on the RCI within 60 days of their association. This will require the submission of a specified form to notify the Keeper of the Land Register of Scotland of the relationship. This notice will require the provision of the Recorded Persons name, address and, if applicable, their registered number. If the land owned or leased by the Recorded Person is land registered, the title number must be provided. If the property is not land registered, a description of the property sufficient to identify it will be required. Lastly, the Recorded Person must include in the notice the capacity in which they own or tenant the property, e.g. as an individual or as a trustee.

The Recorded Person must then provide information pertaining to their Associate(s), including their name, address and date of birth if an individual. Where the Associate is a non-natural person, e.g. a trust or company, the Recorded Person must provide their name, address or registered office/ correspondence address and where applicable, the bodies registered number.  The Recorded Person must also always include in their notice the date on which the association was formed or a statement detailing that such a date is not known to them. The Recorded Persons will, from 1^st April 2022, have a continuing duty to update the RCI of any relevant events which affect the entries in the register. For example, should a trustee join/resign from a trust, the RCI must be updated via notice by the Recorded Person within 60 days of the change taking effect.

Recorded Persons, however, that are subject to other ‘transparency regimes’ need not make an application for registration to the RCI under the new regulations. This means that the new regulation does not apply to Recorded Persons who are UK incorporated charities, companies incorporated under the Companies Act 2006, European PLC’s, public authorities, and certain Scottish and UK partnerships and a selection of other incorporated bodies.

It is largely the responsibility of the Recorded Person(s) to ensure that the relevant notices are made, however, Associates, who reasonably ought to know they hold such a position, must give notice to their Recorded Person(s) of their status as an Associate in the event that the Recorded Person has failed to make a submission to the RCI in time.

Failing to comply with the regulation and provide the above information for the RCI does constitute an offence, which could result in a fine of up to £5,000. Such penalties will of course not apply in the aforementioned grace period, ending 1 April 2023. The imposition of criminal penalties therefore makes it extremely important that all who are required to submit such a notice are acutely aware of their responsibility to do so. Such notices can be made by individuals, but should you require advice on doing so, or any other property matter, there are a range of individuals in Stronachs’ Property and Agricultural teams who would be able to advise on the best course of action.

Laura Gray and Lewis Needle of the Commercial Property team