As part of the continued Land Reform agenda of the Scottish Government, the latest element is The Register of Persons Holding a Controlled Interest in Land (“the RCI”) brought forward by The Land Reform (Scotland) Act 2016 (Register of Persons Holding a Controlled Interest in Land) Regulations 2021. The overall purpose of the Regulations is to establish a register to assist transparency on who has the control and power on decisions relating to all heritable property (i.e. houses, land, buildings, forests, farms, estates, moorland etc.) in Scotland.
By way of illustration, ownership of a house held by a couple as Mr & Mrs Black is easily ascertained by reference to the Land Register or Sasine Register and there is no need to look behind the control and power on decisions relating to it. Likewise, ownership of a farm owned by White and Brown Farming Limited (a UK registered company) is ascertained from review of the Land Register or Sasine Register. However, in the case of a UK registered company the control and power is ascertained by reviewing Companies House for the Persons with Significant Control.
Scots law however recognises ownership of heritable property by other legal entities such as trusts, partnerships, unincorporated associations and foreign entities. When these entities are involved it can often be difficult to ascertain who actually controls decisions in relation to heritable property, by reference to a public register as changes to ownership and control behind these entities does not necessarily lead to a change in the underlying title information at Registers of Scotland.
Registers of Scotland do not require reporting in the RCI where ownership and control are clear by reference to existing registers. They wish to capture the controlling interests in relation to heritable property of any entity where ownership and control differ and are not registered / ascertainable elsewhere under UK statute.
Commencement and Enforcement
The Regulations come into effect on 1 April 2022 for all heritable property held as at that date with a Controlled Interest, and require reporting to be completed in the first year (i.e. by 31 March 2023) otherwise penalties will be imposed. From 1 April 2023 all reporting on changes that trigger the RCI will be required within 60 days to avoid penalties.
The purpose of the RCI is to capture information on the persons who can influence or control owners and tenants of registrable leases (i.e. a lease over 20 years in length). There will be an entry for each “Controlled Person”/“Recorded Person” detailing who is in a position to influence them or control them, known as their “Associate”. The two key questions to consider in dealing with the RCI are:-
- Do the names and interests on the registered/recorded title deeds (“the Recorded Person”) differ from the underlying control; and if so,
- Who “has the right to exercise, or actually exercises, significant influence or control over the Recorded Person's dealings" and is considered the “Associate”.
Failure to provide the information for inclusion in the RCI is deemed a criminal offence, and is punishable by a fine of up to £5,000.
Rural clients
From a land and rural business perspective, the key point of the Regulations is to ensure that the RCI discloses information about persons who have control over the registered owner / tenant. While on the face of it, it may appear to apply to complex arrangements, it will in fact affect many land and rural businesses given the scope of the Regulations which cover:-
- A contractual arrangement giving a person influence or control in relation to the significant decisions against the heritable property;
- Partnerships where at least one partner is an individual or an entity that would require RCI reporting;
- Trusts;
- Unincorporated associations; or
- An overseas legal entity
Examples for land and rural business that are most likely to be affected by the RCI are where a property is held in trust or by a partnership, or where the property is owned by individuals but is occupied, managed and controlled ultimately by another person / legal entity. These structures may have been put in place for succession / tax planning considerations allowing changes in control, beneficial ownership etc without necessitating changes to the underlying registered/recorded ownership.
Example with new terminology
An example to explain the new terminology above would be a family farming partnership where the parents own the heritable property but the son and daughter are those now running the farm on a day to day basis since the parents took semi-retirement. The partnership has then been re-structured so that the parents now each have 20% of the partnership, and son and daughter having 25% and 35% respectively, but the underlying ownership of the farm did not change.
- The parents would be considered the parties owning a “Controlled Interest” – they own the heritable property but only have 20% of the Partnership each;
- The parents would be considered the “Recorded Person(s)” as their names are on the title deeds;
- The son and daughter would be considered the “Associate(s)” as they have 25% and 35% respectively meaning they both have elements of control of the partnership that are not shown on the title deeds; and
- The parents would be responsible as the “Recorded Person(s)” for reporting to the RCI.
Next steps and reporting
There is a full year until penalties arise but if you or your family have a partnership, trusts or are involved in any entities with interests in land in Scotland where ownership and control differ then please do take action now to avoid matters slipping and the deadline being missed.
All Scottish rural businesses should consider whether their structures reflect the ownership and whether they are affected by the RCI.
It is the responsibility of the Recorded Person(s) to complete the RCI records. However, the information is also required for the Associates and therefore it is important that, even if you do very little in respect of the land on a day to day basis, you check to ensure compliance with the RCI. Partnerships, trusts and other structures can last for decades and the reporting requirements are for all land owned as at 1 April 2022 onwards (i.e. not just applying to future transfers / acquisitions / re-organisations). It is important that you consider not only entities that you are actively involved with but also entities that you consider dormant but that could still have reporting requirements relating to the RCI.
Should you have any queries regarding your own circumstances in respect of the RCI, please do not hesitate to contact one of the Land & Rural Business Team who would be able to review your circumstances and advise if further action is required. Contact the a member of the Land & Rural Business team on 03330 430350.
