Introduction
The Land Reform agenda of the Scottish Government has been a trigger for major change in Scottish property law. One significant proposal in the offing is the requirement for disclosure of information on persons who have controlling interests in land, which is currently under active consideration by the Scottish Government. One of the key pillars of Scottish Government policy is to improve transparency of land ownership, but the requirements for disclosure will have far reaching consequences for all property owners and the way they structure their landholdings. All owners and tenants of property will need to be aware of the requirements for disclosure, and the form that is likely to take.
Who owns Scotland?
The Land Reform (Scotland) Act 2016 requires Scottish Ministers to make regulations for the publication in a register, of details about the parties who have a controlling interest in owners and tenants of land. The underlying policy purpose of this register is to give communities and individuals who are affected by decisions concerning land more information about the persons who have control of that land, and who make those decisions, with a view to enabling contact and dialogue about issues that affect the community.
The content of the regulations and the extent of disclosure and publication have still to be decided, and Scottish Government is currently consulting on the detail. A link to the consultation, which closes on 5 December 2016, can be found here.
As it currently stands, information about who owns land can be found out by way of a search in the property registers – either the Register of Sasines or Land Register. However, understanding who exactly controls the land is a different matter, particularly when the title to a property is held in a complex ownership structure.
What are the proposals?
The Government believes that by improving transparency of who holds a controlling interest, Scottish land will be able to be developed in a more sustainable way, and in the interest of land owners, communities and wider society.
The consultation looks at three distinct elements and seeks views on:
- How should “controlling interest in a land owner or tenant” be defined?
- How to deal with practical aspects, such as the scope of the information, where it should be held and how much should be available to the public; and
- Who should provide the information, and possible sanctions for failure to comply.
Key considerations for defining what constitutes a controlling interest will be identifying the parties who are in actual control of decision making about the land, who take financial risks in relation to the land, and who benefit financially from the land.
Clearly, this goes further than ownership. It concerns those parties who have an influence on landowners and tenants. There are likely to be similarities with the recently introduced requirement on companies to provide information to Companies House and keep a register of people with significant control of the company (more information on the PSC requirements can be found here). While Scottish Government consider this and definitions such as those for "beneficial interest" under anti money laundering regulations to be helpful (where the thresholds include holding more than 25% of shares in the company, for example) they have not set out any definitive proposals for the definition.
Who and what must be disclosed?
The regulations are likely to apply to all landowners and tenants of both rural and urban land and properties. This means that it is likely to extend to owners and tenants of houses, as well as commercial buildings and land.
At the very least, landowners and tenants will need to disclose their name, but the disclosure of only a name is unlikely to be sufficient for that party to be identified, particularly if the main purpose is having a way to contact such persons. Accordingly also requiring a person’s postal address, service address, email address or contact number is suggested. The Government recognises this may raise privacy concerns for individuals affected, especially in a commercially sensitive environment. To address concerns, the Cabinet Secretary for Environment, Climate Change and Land Reform, Roseanna Cunningham has given assurances that a process for protecting individuals’ privacy will be specified in the regulations.
Of course, much of land and property in Scotland is not owned or leased directly by individuals. The regulations will affect those behind companies and other corporate structures, trusts and charities who own land in Scotland. This consultation answers few of the questions such organisations will have about the extent of disclosure that will be required. It is undecided about whether information about the extent of the controlling interest needs to be disclosed. As the objective is to provide a means of contacting the relevant person, it may be the mere fact that they are the relevant person is sufficient, with other details being irrelevant for the purpose.
Who is liable for providing this information?
The Government has not yet indicated on whom the burden will fall for disclosure. It could be the individuals with the controlling interest, or the person with the registered title. The requirements are likely to be another administrative burden on those responsible, and it will be important for the regulations to ensure as far as possible, that duplication of the disclosure requirement is kept to a minimum.
Sanctions for failure to comply
The 2016 Act states that the regulations can include provisions for both civil and criminal penalties for non-compliance – demonstrating a high threshold, although any criminal penalty is likely to consist of a fine, not imprisonment. The option of making this provision of information a condition for registration in Land Register is also being explored in the consultation.
Greater transparency
It is clear that there is still a considerable amount of thinking to be done on the final shape of the requirements. We recommend that all parties who have views on the proposals should make a response to the consultation, or other representations to the relevant Government department, so that the final version of the regulations sets up a fair and reasonable process, that takes account of the interests of all those affected.
Scottish Government is not alone in looking to make "beneficial ownership" of land more transparent. In March this year, the UK Department for Business Innovation and Skills published a consultation on Enhancing transparency of beneficial ownership information of foreign companies undertaking certain economic activities in the UK, which suggests that foreign companies should be required to provide information on their beneficial ownership (i.e. who controls and benefits from the activities of the company) before they are able to buy land or property in England and Wales, or enter into public procurement contracts.
And with the furore over the "Panama Papers" scandal earlier in the year, it is clear that the global direction of travel is for greater transparency.