On 11 September 2016, the Scottish Government published a Consultation on proposals for the disclosure and publication of information about controlling interests in land owners and tenants across Scotland. Below are selected sections from my response. My thanks go to Anna Berlee, Lecturer at Tilburg University and Michael Arthur, LLM by Research student at Glasgow University for their assistance in drafting this consultation response.
Do you have any comments about making information about persons with controlling interests in owners and tenants of land available?
Publicity is an important principle of Scottish property law. The reason for this is that property rights have third party effects and therefore third parties should be able to investigate and discover such rights. There is a legal framework, including the Land Registration (Scotland) Act 2012, as well as an infrastructure, including the Registers of Scotland, which supports the application of this principle in Scotland. An example of the application of this principle is that a buyer of land must register the transfer in the Land Register in order to obtain ownership.
Transparency, however, is a far broader principle with a number of aims and policy objectives, including combatting tax evasion and money laundering as well as promoting good governance. There are a significant number of reforms ongoing which are aimed at improving transparency – such the introduction of the Register of Persons with Significant Control in UK Companies in the Small Business, Enterprise and Employment Act 2015 and implementation of the Fourth Anti-Money Laundering Directive of the European Union. The two principles of publicity and transparency can overlap but, as can be seen, they both have different objectives.
I can foresee problems arising if the infrastructure created for the purpose of facilitating the publicity principle is then used for the broader purpose of transparency. One issue is that of competence. As highlighted in the Consultation (para.20), legislating to address tax evasion and money laundering is outwith the competence of the Scottish Parliament. Secondly, Registers of Scotland has limited resources which reflect its remit and the reason for its establishment. These resources are currently under strain due to the aim to complete the Land Register by 2024. Setting up a new Register would require a significant amount of investment in terms of time and cost, creating further strain on this important public body. Finally, without a clearly defined and well considered justification, difficulties will arise in the establishment, operation and policing of any reforms.
This leads me to question what is the justification for the Register of Controlling Interests. The stated justification is to empower people to engage constructively with landowners and promote sustainable decision-making in relation to the land (Consultation para.18). Many of the examples given about why the Register should be established (Consultation paras.18-21) are concerned with locating a natural person who represents the owner in order to facilitate communication. This is an achievable aim, which does not necessarily require a widespread and complex change. The issues identified would be greatly assisted by having a section in the title sheet which includes “contact details”. These details would require to be those of a natural person or solicitor. As the Land Register will be complete by 2024, this will mean that for all land, there will be an address to write to/phone number to call regarding the land.
To address privacy concerns (see my answer regarding privacy below), one modification of this proposal would be that the contact details could be available only on request and only if a legitimate interest was shown in the application for contact details. If statistics were recorded regarding the number, source and location of these requests, this would result in the additional benefit of providing the Scottish Government further information on the scale of the problems identified in the Consultation.
In your view, what are the key considerations that Scottish Ministers should take in to account in defining a “controlling interest” or “persons with controlling interests in landowners and tenants” for the purposes of these regulations?
A distinction can be made between those with controlling interests in law, such as holding more than 25% of the shares in a company, and in fact, such as those significantly influencing decision-making in relation to a plot of land. The former will usually be relatively static and formalised in some way such as through registration at Companies House. The latter will often not be formalised and will potentially be incredibly fluid and unpredictable. Therefore, providing a satisfactory definition which includes factual controlling interests, which is then applicable to the various bodies that can hold land and which results in reliable information for registration, is likely to be highly infeasible.
Some vehicles of ownership, like trusts and partnerships, have no requirement of registration of the agreements regulating them. There is often a careful balance in the law governing these bodies between publicity and other aspects of their legal nature, such as limited liability and reporting obligations. To require the controlling interests of these bodies to be publically registered because a particular body owns land would significantly impact on the legal nature of these institutions in a manner which should be carefully considered before implementation.
Further, again, there are a number of reforms at a UK and EU level mentioned above that are being implemented to improve transparency of a variety of legal bodies. The process of these reforms is capable of taking a broad view of the nature of these bodies as well as the benefits of reform. There is a concern expressed in the Consultation about “double-reporting”. A solution to this issue is for Scottish Government to feed into these existing transparency reform processes in order to promote the particular goals it is attempting to achieve through the creation of a Register of Controlling Interests rather than create an additional level of transparency reforms.
Finally, in the event a Register of Controlling Interests was established, from a coherency point of view, I would emphasise that it is important to have clarity in any regulations about the terms which are being used. Introducing terms like “legal owner” or allowing “owner” to also include a tenant under a long lease, could create unnecessary confusion when implementing the regulations. Much property law reform recently has been aimed at simplifying the law and I hope this work would not be undone through future legislation.
In your view, should a duty to provide information about persons with controlling interests in landowners and tenants apply to landowners 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)?
Regarding (i), as mentioned in my answer to the first question, Registers of Scotland are attempting to complete the Land Register by 2024. This deadline is placing strain on the resources of Registers. The priority regarding areas of land acquired before 1617 should be registering the owner and tenants in the Land Register. Only when the owners and tenants of these areas are established will it be feasible to proceed to registering those with controlling interests in these owners or tenants.
Regarding (ii), section 39 of the Land Reform (Scotland) Act 2016 requires Scottish Ministers to make provision about publication of person who have controlling interests in owners and tenants of land. Persons with personal rights to property are not owners before they have completed the registration process. Further the period between acquiring a personal right and acquiring a real right in land is usually such a short period that it would be disproportionate to the aims of the Register to require registration of controlling interests within this period.
Regarding (iii), for leases under 20 years, tenants acquire a real right by taking possession of the land. Possession, like registration, is a way for the publicity principle to be satisfied. This can be justified by arguing that due to the number and short duration of leases under 20 years, it would be unduly cumbersome for such leases to be registered in the Land Register. The same argument can be made in relation to controlling interests in tenants of such leases and again, referring to the aims of the Register, it would be a disproportionate solution.
In your view, should the duty to disclose information about any person with a controlling interest in a landowner or tenant apply either when a person is a person with a controlling interest in a landowner or tenant when the regulations come into force, or becomes a person with a controlling interest in a landowner or tenant when the regulations are in force?
Depending on the definition of controlling interest, the persons holding controlling interests could be multiple different people, with interests which arise (such as through the purchase of shares in a company) or are extinguished (such as through death of a person) on the occurrence of a range of different events. These events may be discoverable through due diligence - usually when there is a transaction with the land - but otherwise, owners, tenants and their professional advisers will not have the time, or inclination, to continue researching who/what has a controlling interest in a particular body.
To make an analogy with other transparency requirements, the Register of Persons with Significant Control for companies only needs to be updated at Companies House once a year. As a result, when checking the Register, it will be accurate at the date of the last Confirmation Statement, but does not account for subsequent happenings. In order to fulfil the requirements of the Fourth Anti-Money Laundering Directive, the Department for Business, Energy and Industrial Strategy have suggested introducing an obligation to update the information within 6 months of any change to a body’s Persons with Significant Control. (Department for Business, Energy and Industrial Strategy, “Implementing the Fourth Money Laundering Directive: Beneficial Ownership Register” (Nov 2016) para.74.)
Registers have this as an inherent problem. They can only produce a picture of a particular snapshot in time. To create a regime with a continuing duty of registration of controlling interests is unrealistic.
In your view, should an application for land registration be rejected if the applicant fails to supply information about any “person with controlling interest”?
The Registers of Scotland is currently working towards completion of the Land Register by 2024. This target will not be assisted by making the provision of detailed information of controlling interests a condition of registration. I would also query how this requirement would operate in the event of keeper induced registration.
Please tell us about any potential impacts, either positive or negative, upon the privacy of individuals that may arise as a result of any of the proposals contained in this consultation.
I co-wrote a blog on publicity and privacy in Land Registration in Scotland with Anna Berlee, Lecturer at Tilburg University. A central argument of this blog is that unlimited access to personal information in the Land Register may conflict with data protection principles that protect the privacy of those registered in the Land Register. Personal data includes information such as name, date of birth, address, previous addresses and price of property.
Protection of personal data is a fundamental right of the European Union (see Article 8 EU Charter). The 1995 Data Protection Directive of the EU was implemented into Scots law by the Data Protection Act 1998. The main relevant requirement in this legislation is that the processing of personal data must be proportionate to the purpose for which they are collected and/or further processed. This brings me again to question what is the justification for the Register of Controlling Interests and what measures would be proportionate to the stated goal to empower people to engage constructively with landowners, therefore promoting sustainable decision-making in relation to the land. It is suggested that setting up a new Register and requiring a new category of persons to disclose personal data which is then publically accessible, may not be a proportionate response to the problem identified.
As an alternative, proportionate response, as outlined in my response to first question, I would suggest the Government considers the option of contact details for Land Register property to be provided on application with a legitimate interest to the Registers of Scotland.
~ Dr Jill Robbie
Dr Jill Robbie is a Lecturer in Private Law at the School of Law. Her monograph 'Private Water Rights' was published by the Edinburgh Legal Education Trust in 2015. You can follow Jill on Twitter: @JillJRobbie