The Register of Controlled Interests in Land – what does it mean for landowners and tenants?

In recent years, there has been a shift towards greater transparency over land ownership in Scotland. While this has been focussed mainly on offshore and other complex corporate structures, there are new regulations now in force in Scotland which can affect landowners (and in some cases tenants) of all shapes and sizes, including individuals, small trusts and community clubs and societies.

What is more, the grace period for compliance with this new regime will end on 1 April 2024. After that date, failure to comply can mean a potential criminal record and fines of up to £5,000.

The new system is known as the Register of Persons Holding a Controlled Interest in Land (or “RCI” for short).

What do you need to do?

Landowners, and tenants under certain leases registered in the Scottish property registers, must consider whether there is any other person or entity who is entitled to exercise, or who is in fact exercising, significant influence or control over their dealings with the land.

If there is, then it is likely that:

• the landowner or tenant will be a Recorded Person for the purposes of the regulations, and
• the controlling party will be an Associate

There are some exceptions (for example, a bank holding a security over a property will not normally be classed as an Associate). There is an online support tool on the Registers of Scotland website which can help you decide whether you have responsibilities under the regulations. In this article we’ll take a closer look at the key responsibilities for Recorded Persons and Associates, and some practical examples of where the new regulations may apply.

What does a Recorded Person need to do?

The key obligations on a Recorded Person are:

• To register as a Recorded Person in the RCI, and notify the controlling entity or person who they consider is an Associate. (There may be more than one Associate). The notification to the Associate will ask them to verify certain details.
• The Recorded Person must also update the RCI registration whenever there are any changes in their own details, and any changes in the details of the Associate (including registering any new Associates, and removing anyone who stops being an Associate).

Some entities are exempt from registering as Recorded Persons – for example, UK companies, SCIOs and LLPs. This is because they are already subject to an existing transparency regime about who is in control of them. However even if they are exempt from registering as a Recorded Person, they could still qualify as an Associate.

What does an Associate need to do?

The key obligations on an Associate are:

• They must respond to the Recorded Person’s request for verification of their details, and update the Recorded Person on any changes in their details on an ongoing basis.
• An Associate has a duty to be proactive in ensuring that its details are registered, rather than just to react to a notice from a Recorded Person. If an Associate does not receive any notification from the Recorded Person, they must inform the Recorded Person that they consider themselves to be an Associate, and provide them with their details.

An Associate who considers that they are at risk of violence or intimidation can make a request, known as a security declaration, to have their personal details excluded from the public register. They must revoke this declaration when it is no longer valid.

Examples of situations where there is an Associate

The position will differ depending on whether the Recorded Person is an individual, partnership, trust, unincorporated body or an overseas entity. Some examples are set out below. These are not exhaustive and each situation needs to be considered according to its specific circumstances. There is detailed guidance for each of these categories featured on the Registers of Scotland website.

Individuals

The RCI regime will come into play for an individual if they have entered into a contract or other arrangement under which they own or lease the land for or on behalf of another person or entity, or another person or entity has the right to exercise, or actually exercises, significant influence or control over that individual’s dealings with the land.

Developers should consider whether any current option agreements they have with landowners give them a level of control over the land that would constitute a controlling interest, and result in them being classed as an Associate. Registration would not however require the terms of such agreements themselves to be made public.

Partnerships

Traditional partnerships will be affected where there is another individual or entity which has significant influence or control over the land, any of the partners named on the title, or the partnership itself. The most common situation affecting partnerships is likely to be where new partners have joined the partnership since the property was purchased, but the title has not been updated to reflect their names. In this situation, each of the current partners who are named on the title will have to register as Recorded Persons, and each of them must register the newer partners as an Associate.

Trusts

Where trustees have changed since a property was acquired by the trust, RCI would require any remaining original trustees to register as Recorded Persons and the other (newer) trustees as Associates.

If none of the trustees originally named on the title remain in place then it will be necessary for all of the current trustees to each register as Recorded Persons. Each trustee must then register each other trustee as an Associate.

In addition, anyone else who has significant influence or control over the trust or any of the trustees would also be an Associate and need to be registered as such.

If there is in fact no one other than the trustees exercising such influence or control, then

the trustees may choose to instead bring the property register up to date to reflect the names of the current trustees. This will involve an application to rectify if the property is registered in the Land Register, or recording of a notice of title if the property is still in the older Sasine Register. In some cases this may be preferable to registering in the RCI (with the ongoing obligations that brings in terms of keeping the information up to date).

Clubs and associations

For these bodies, an Associate will be anyone who is responsible for the general control and management of the administration of the body. Anyone who holds an office or other official position will automatically be considered to have that responsibility. There may also be others involved in the running of the club or association who would also fall within this description.

It’s common for the title to land held by a club or association to be in the name of ex officio office bearers, but those holding office often change without the property registers being updated. Where that is the case, the current office bearers should take steps to ensure that an appropriate RCI submission is made.

Overseas entities

Even if an overseas entity is already registered in the Register of Overseas Entities (“ROE”), they may also need to register in the RCI if there is an Associate in respect of land they own or lease under a lease registered in the Scottish property registers.

There are some exceptions, for example persons whose only relationship with the overseas entity is as a paid employee or professional such as a solicitor or accountant. The regulations give a detailed list of the exemptions, and there is guidance on what constitutes an Associate and the exemptions to that available on the Registers of Scotland website.

There also could be overlapping obligations under RCI on an overseas entity if they are also a partnership or are acting as a trustee.

Conclusion

The potential criminal and financial penalties involved here mean it’s important that landowners and tenants take the time now to consider whether they may be caught by these new regulations. Please contact us if you need further assistance or advice with this.