Improving transparency in land ownership in Scotland: a consultation on controlling interests in land

WORKSTREAM III: THE DUTY TO PROVIDE INFORMATION AND SANCTIONS FOR NON-COMPLIANCE

This workstream seeks respondents' views on who should be required to provide information and in what circumstances, and whether, and to what extent, sanctions may be appropriate and proportionate in the case of non-compliance.

Chapter 5: the duty to provide the information

Who should the duty apply to

1. The policy objective behind the new register is to provide people affected by decisions in relation to land, such as local communities, with greater information about the person, or persons, who have a controlling interest in the land owner or tenant. Currently, anyone who wishes to know more about who controls land can obtain information about the legal owner by searching for this information in the property registers. As explained in chapter 1, Registers of Scotland hold Scotland's property registers and in most cases it is possible to find the name of the legal owner in the Land Register or Register of Sasines.

2. However, it is often the case that having information about the legal owner will not assist in reaching the person, or persons, who controls the land owner or tenant of the land in question. This is precisely the type of scenario in which the additional information that will be disclosed in the proposed new register will be used. Scottish Ministers have previously stated to the Scottish Parliament that the duty should apply to land owners and tenants, who in most cases should know who the person with the controlling interest is. We recognise that where there are complex ownership structures lying behind a legal owner, such as a chain of companies owned in off-shore jurisdictions, it may not be possible for the registered proprietor to obtain information about persons with controlling interests. This would suggest that the duty on the legal owner should be to "take reasonable steps" to ascertain if there is a controlling interest.

3. It should also be highlighted that "legal owner" in this context includes a tenant in a long lease who could be a registered proprietor. Also, depending on the assessment of responses to the questions in chapter 3 it is possible that the duty will also apply to tenants in high value leases, and any proprietor of land that is not recorded in the Register of Sasines or registered in the Land Register because either the property was acquired prior to the Register of Sasines commencing in 1617 or they acquired a personal right to property, but have not yet registered the deed in their favour in the Land Register.

QUESTION 27: In your view, should a duty to provide information about persons with controlling interests in land owners and tenants apply to land owners and tenants with titles in the Land Register or Register of Sasines and:

I. Land owners and tenants where the property was acquired prior to the Register of Sasines commencing in 1617;

II. Land owners or tenants who have acquired a personal right to property, but have not yet registered the deed in their favour in the Land Register; or

III. Tenants in a high value lease that is not a long lease (a lease of 20 years or fewer)?YES/NO.

QUESTION 28: If NO, why not?

QUESTION 29: If YES, in your view what are the advantages of this arrangement?

QUESTION 30: If YES, in your view what are the disadvantages of this arrangement?

4. It may also be appropriate to place the duty on the person or persons with a controlling interest. However, the Scottish Government acknowledges that it may be difficult in practice to enforce these duties if it cannot be ascertained if such a person exists from available information or if these persons are established or resident outside the UK. Enforcing a duty in these circumstances may be challenging and, to the extent this is possible, could be expensive.

QUESTION 31: In your view, should a duty to provide information apply to the "person with the controlling interest"? YES/NO.

QUESTION 32: If NO, why not?

QUESTION 33: If YES, in your view what are the advantages of this arrangement?

QUESTION 34: If YES, in your view what are the disadvantages of this arrangement?

5. It is also possible that there may be intermediate persons who hold the information necessary to determine who has a controlling interest, such as solicitor in a law firm or an accountant who has been dealing with either the land owner or tenant, or the person with a controlling interest in a land owner or tenant. The Scottish Government invites views as to whether it is appropriate to place a duty on intermediate persons.

QUESTION 35: In your view or experience, are there parties who serve as intermediaries between registered proprietors and persons with a controlling interest in land? YES/NO.

QUESTION 36: If YES to Q35, in what scenarios do you think that there are parties who serve as intermediaries between registered proprietors and persons with a controlling interest in land?

QUESTION 37: If YES, in what capacity are there parties who serve as intermediaries between registered proprietors and persons with a controlling interest in land?

QUESTION 38: In your view should a duty to provide information apply to such intermediaries? YES/NO.

QUESTION 39: If NO, why not?

QUESTION 40: If YES, in your view what are the advantages of this arrangement?

QUESTION 41: If YES, in your view what are the disadvantages of this arrangement?

When the duty should apply

6. The Scottish Government considers that the duty to supply the information should apply when a person becomes a person with a controlling interest in a land owner or tenant. In many cases, this will be when a natural or legal person is purchasing land or buildings and will be proceeding to register their title on the Land Register. However, it is also possible that a person could become a person with a controlling interest in a land owner or tenant when there is already a Land Register title to the land in question. This might be the case where there is a change in the structure of a company or partnership that means that a person becomes a person with controlling interest when they were not one before, or if a person holds title to land as a natural person but the land or buildings in question become an asset within a company, partnership or trust without any transfer of legal title.

7. The Scottish Government also considers that in order to ensure the maximum level of transparency in respect of persons with a controlling interest in land owners or tenants, the duty to supply information should apply when a person who was already a person with a controlling interest in a land owner or tenant when the regulations come in to force. The duty will apply from the date that the regulations come in to force.

8. The Scottish Government also considers that the duty should apply when a person becomes a person with controlling interest in a land owner or tenant over land that is still recorded in the Register of Sasines, or indeed not recorded or registered at all. Depending on the assessment of responses to question 8 in chapter 3, the duty will also apply when there is a person with controlling interest in land owners or tenants and that person acquires a high value lease.

QUESTION 42: In your view, should the duty to disclose information about any person with a controlling interest in a land owner or tenant apply either when a person is a person with a controlling interest in a land owner or tenant when the regulations come into force, or becomes a person with a controlling interest in a land owner or tenant when the regulations are in force?

QUESTION 43: If NO, why not?

QUESTION 44: If YES, in your view what are the advantages of this arrangement?

Sanctions and enforcement

9. The duty that will apply will require to be underpinned by proportionate enforcement mechanisms to be effective. The Land Reform (Scotland) Act 2016 enables the regulations to include provision for criminal offences or civil penalties ^[21] . The regulations could also provide for the effect of providing, or failing to provide, information required under the regulations ^[22] . There are a range of possible enforcement mechanisms that could be deployed.

Civil penalties

10. The Scottish Government considers that a duty could be imposed to require that all reasonable care is taken to comply with the duty and to provide accurate information. The scope of this duty will be considered, among other things, in light of our assessment of the responses to the section of this consultation seeking views on who should be covered. For many matters dealt with by government bodies, it is appropriate to have civil penalties for non-compliance with a statutory duty, and for matters such as failing to fully disclose the information that is needed and for failing to keep information up to date.

11. For example, Revenue Scotland have a range of penalties that could apply if there is a failure to pay the relevant tax or make a tax return. There can also be penalties for any inaccuracy in a taxpayer document, for a failure to notify under assessment, for failure to comply or obstruction, for inaccurate information or documents, for concealing, destroying etc. documents following an information notice or notification, failure to comply with a time limit, and penalties for a range of administrative matters. There are different levels of penalty for different time periods and for the different circumstances in which penalties apply.

12. Should the assessment of responses to these questions in the consultation suggest that a civil penalty should apply, then consideration will be given to the appropriate level of civil penalty and to the appeal rights.

QUESTION 45: In your view, should a civil penalty be imposed for failure to comply with any of the duties contained in the regulations? YES/NO. Please give details.

Criminal Offences

13. It is possible to have both civil penalties and criminal offences in relation to any failure to comply with the duty to be included within the regulations. As with any civil penalty, we would anticipate that a criminal offence could be applicable to any person who fails to comply with the duty by not providing the information about any person with a controlling interest in a land owner or tenant, or who fails to provide accurate information. The 2016 Act limits the maximum penalty for any criminal offences created through the regulations to a fine not exceeding level 5 on the standard scale (currently £5,000). Imprisonment would not be an option for any criminal offences created in this way.

14. The Land Registration etc. (Scotland) Act 2012 Act has a criminal offence for making a false or misleading statement in relation to an application to the Land Register. A similar offence could be considered for inclusion in these regulations (and for failure to provide information at all), and further consideration will be given to how any offence would operate in practice as part of a separate workstream on sanctions and enforcement.

QUESTION 46: In your view, should failure to comply with any of the duties contained in the regulations be a criminal offence? YES/NO. Please give details.

Land Registration condition

15. One of the practical enforcement issues with both civil penalties and criminal offences will be the question of how to apply a penalty or how the Crown could prosecute for a criminal offence when the person to whom the duty applies to is not located in Scotland. It may be the case that the relevant person is simply willing to pay a civil penalty to preserve anonymity. Issues of enforcement, in the context of seeking to improve transparency of land ownership, are factors that have the potential to erode the effectiveness of the regulations Scottish Ministers take forward and introduce to Parliament.

16. A further option that the Scottish Government intends to explore in detail as part of the separate workstream on sanctions and enforcement is the possibility of making the provision of information a condition of registration in the Land Register. This option was set out in the letter of 3 March sent to the Rural Affairs, Climate Change and Environment Committee by Dr Aileen McLeod, the then Minister for Environment, Climate Change and Land Reform ^[23] .

17. The Scottish Government recognises that this option may cause concern to parties who wish to acquire title to land in Scotland and there are a number of practical, policy and legal issues to work through with this proposal in particular. An alternative may be to enable land registration to proceed but to make provision for a form of charge or note to be placed on the relevant title sheet in the Land Register or on the search sheet of the Register of Sasines where it is found that the duty to provide information has not been complied with. A charge of this sort would be a charge over the property that would fall to be paid when the property is sold. The purpose and effect of any note on the title sheet could simply be for information purposes, to notify anybody interested in the title in question that there may be a person with a controlling interest in a land owner or tenant in respect of the title, but that they have not made the relevant entry on the new register. Alternatively, the note could have legal effect, for instance by preventing the legal owner selling on the land or lease in question, or alternatively to prevent a new owner from registering title to the land in question, as the property could perhaps be sold on the market but the purchaser could be prevented from registering title.

18. Any such process will clearly be complex and we will need to give thorough consideration to the range of practical, policy and legal issues, in particular to any implications for the conveyancing and land registration processes. We invite views on this option, and would encourage anyone with a particular interest in this area to take part in the separate workstream on sanctions and enforcement.

QUESTION 47: In your view, should an application for land registration be rejected if the applicant fails to supply information about any "person with controlling interest"? YES/NO. Please give details.

QUESTION 48: In your view, should an application for land registration be rejected if the applicant fails to certify that no such "person with controlling interest" exists? YES/NO. Please give details.

QUESTION 49: In your view, taking in to consideration all of the sanctions and enforcement options set out in this chapter, what mechanisms would be most appropriate to enforce the duty to provide information? Please explain your answer.

Challenge and Exemptions

19. In relation to sanctions and enforcement, the Scottish Government will need to give consideration to the need for a right to challenge the information about persons with controlling interests in land owners and tenants that is disclosed and a right to challenge non-disclosure of the information.

20. While the overall policy imperative is to ensure the maximum disclosure of information about persons with controlling interests in land owners and tenants, the Scottish Government recognises that for some parties, in some limited circumstances, it may be undesirable for their details to be disclosed. Currently, this can be achieved by taking title on the Land Register in the name of a legal entity or appoint trustees to hold title to the land in question. It is worth noting in this context that the PSC register framework allows for application for protection, for instance if there is a serious risk of violence or intimidation.

21. The Scottish Government considers that privacy exemptions will be necessary in some limited circumstances such as where publication of information about persons will put them at serious risk of harm. It will be necessary to develop a mechanism and process to allow applications to be considered and decided. Again, we invite views on this issue, and would encourage all those with an interest in this to take part in the dedicated workstream on sanctions and enforcement.

QUESTION 50: In your view, are there instances in which there should be exemptions? YES/ NO.

QUESTION 51: If NO, why not?

QUESTION 52: If YES, in your view what is the justification for such exemptions?