Key takeaway

Sanctions have become a defining issue in UK commercial property transactions. Following the broad interpretation of the ownership and control test in Hellard v OJSC Rossiysky Kredit Bank, legal risk now extends far beyond direct property ownership to include indirect influence, neighbouring assets, and third-party interactions. For investors and developers navigating UK sanctions in real estate, failing to conduct early and ongoing audits risk operational delays, voided transactions, and the necessity of facing lengthy OFSI license applications.  

How does the ownership and control test impact UK property transactions?

Under the Russia (Sanctions) (EU Exit) Regulations 2019, ownership and control are now interpreted more broadly. As set out in Hellard v OJSC Rossiysky Kredit Bank, control can arise through legal rights, indirect ownership, practical influence, or the influence of an entity that can act on a designated person’s wishes.

The scope of interest in a property has therefore expanded. As demonstrated in Hellard, property may fall within financial restrictions even without direct ownership, including where influence or indirect control is present. Because of this, relying on an expertly drafted contract with specific sanctions warranties is essential to identify risks that may arise in ways not immediately apparent from the title or public records, particularly given the complex transparency implications for non-UK entities owning UK real estate. This introduces a degree of legal uncertainty, particularly where “influence” or “control” is assessed on a factual basis, making it difficult for practitioners to draw clear boundaries during due diligence.

How can neighbouring properties trigger sanctions risks in UK property transactions?

Property is, by its nature, interconnected, and many assets depend on third parties for their use and development. This means that neighbouring properties and their owners may now fall within the scope of investigation. In practice, dealings may require:

• access rights

• party wall agreements

• scaffolding licences

• contributions to shared works

If any of these neighbouring parties are sanctioned or are deemed to be controlled by a designated person, those routine interactions may become prohibited. This includes individuals or entities on the sanctions list (designated persons), as well as companies or structures owned or controlled by them.

These relationships matter because, if one of these parties is sanctioned (or controlled by a sanctioned person), certain dealings with them may be restricted or prohibited. However, this is not a blanket rule; not every neighbouring property or third party requires detailed investigation.

What are the commercial impacts of OFSI licenses on property developments?

Projects may be delayed by licensing requirements where dealings with a sanctioned party cannot be avoided. In such circumstances, a licence from the Office of Financial Sanctions Implementation (OFSI) may be required before certain payments can be made or works can proceed.

In practice, these licences can take many months, and sometimes even years, to obtain. This creates a significant tension between regulatory compliance and commercial timelines, particularly for development projects where delay can materially affect viability and financing arrangements.

How do location-specific factors complicate sanctions due diligence?

Additionally, location-specific factors may increase complexity. Properties near embassies of sanctioned states may face additional challenges, including:

• legal issues linked to diplomatic immunity

• security concerns and potential disruption

• impacts on value and marketability

Moreover, the UK’s broader crackdown on foreign-held assets, accelerated by the Russia and Ukraine conflict, demonstrates that current geopolitical developments may also contribute to sanctions risks affecting properties linked to jurisdictions such as Iran or Venezuela. Taken together, these factors demonstrate that sanctions due diligence must now be proactive, wide-ranging, and subject to a regular legal check-up as projects evolve.  

How can investors manage sanctions risks in UK real estate?

The expansion of the ownership and control test, particularly following Hellard, has fundamentally changed how sanctions impact real estate. The most significant development is the recognition that risk may arise through indirect relationships, influence, or the practical realities of how a property is used.

For investors and developers, this means that sanctions due diligence can no longer be treated as a simple or routine exercise. It must form part of the commercial analysis of any asset from the outset and be kept under ongoing review. Failure to do so risks delay and may impede the use of the property. At the same time, the increasing breadth of the regime risks introducing a level of unpredictability that may complicate deal execution and pricing, particularly where risks cannot be fully mitigated at the outset.

Striking the appropriate balance between proportionate due diligence and over-investigation remains a key practical challenge for practitioners.

Please contact the Real Estate team at Barnes Law for advice on managing sanctions due diligence, structuring complex property transactions, and navigating regulatory compliance.

Authored by Barnes Law Managing Partner, Yulia Barnes.

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