The Register of Persons Holding Controlled Interest in Land goes live – what does it mean for banks?

The Register of Persons Holding Controlled Interest in Land (the “RCI”) went live on 1 April 2022. This register goes beyond the Land Register or Sasine Register in Scotland, which holds information on who legally owns the land in Scotland. Instead, the RCI identifies who controls the decisions of the owners or tenants (for leases of more than 20 years) of land and property in Scotland.

The Land Reform (Scotland) Act 2016 (Register of Persons Holding a Controlled Interest in Land) Regulations 2021 (the “Regulation”) requires certain persons to register as a “recorded person” in the RCI, along with registering their “associates”.  A recorded person is an owner or tenant whose decisions about the land can be influenced by an associate, in certain defined circumstances including where the owner or tenant is an overseas legal entity.

The owner or tenant (the recorded person) will be required to register themselves and their associates within 60 days from 1 April 2022 (for existing arrangements) or from the date on which someone becomes an “associate” (whether by acquisition of land or otherwise).  However, the Regulation provides a 1 year grace period to allow time to register.  From a lenders perspective, once this grace period has ended and the 60 day period has passed, there are relevant considerations in terms of consequences for non-compliance and impact upon security.

Firstly, the Regulation makes specific provision for creditors to the recorded person (such as the holder of a standard security).  The explanatory note to the Regulation provides that this excludes banks or building societies from being registered as associates when taking a standard security from the recorded person.

However, failure to comply with the duties set out in the Regulation is a criminal offence.  This criminal offence is punishable by a fine which, on the current scale, can be up to £5,000.  This fine can be applied to either owners or tenants of the land and their associates that are exerting significant influence.

Whilst there are criminal consequences for non-compliance, there are however, no civil consequences. Therefore, the buying and selling of land interests will not be barred. Additionally, unlike the new Register of Overseas Entities being implemented in the UK, the RCI is not linked to the conveyancing process. Therefore, Land Registration applications can be processed irrespective of whether an application to the RCI has been made. Consequently, whilst lenders should be wary about the criminal consequences that can be faced by their borrowers, it appears that irrespective of such consequences, the land may still be bought (and secured) and sold.

Finally, it is important to note that while the RCI has been live from 1 April 2022, it applies retroactively. This means that where land has been bought and sold prior to the RCI going live, and the owners are influenced in the aforementioned types of association, a recorded person will have to be registered in the RCI.