Building Societies Act 1997

Part I — Constitution and powers

Principal purpose and powers

1

• (1) For subsection (1) of section 5 (establishment, constitution and powers) of the Building Societies Act 1986 (“the 1986 Act”) there shall be substituted the following subsection—

(1) A society may be established under this Act if (and only if) it complies with the following requirements, namely— (a) its purpose or principal purpose is that of making loans which are secured on residential property and are funded substantially by its members; and (b) its principal office is in the United Kingdom.

• (2) After subsection (4) of that section there shall be inserted the following subsection—

(4A) If, after its establishment, a building society fails to comply with the requirements imposed by subsection (1)(a) or (b) above— (a) the powers conferred on the Commission by section 36 or 37 shall become exercisable in relation to the society; but (b) the failure shall not affect the validity of any transaction or other act.

• (3) For subsections (5) to (7) of that section there shall be substituted the following subsection—

(5) Subject to the provisions of this Act, a building society shall have the powers conferred on it by its memorandum.

• (4) For subsection (10) of that section there shall be substituted the following subsection—

(10) In this Act “residential property” means land at least 40 per cent of which— (a) is normally used as, or in connection with, one or more dwellings; or (b) has been, is being or is to be developed or adapted for such use; and for the purposes of this subsection, the area of any land which comprises a building or other structure containing two or more storeys shall be taken to be the aggregate of the floor areas of each of those storeys.

Membership and liability of members

2

• (1) In paragraph 5 of Schedule 2 to the 1986 Act (membership), for sub-paragraphs (1) and (2) there shall be substituted the following sub-paragraphs—

(1) The rules of a building society shall provide that no person shall be a member of the society unless he is a shareholding member or a borrowing member or both. (2) In this Act, in relation to a building society— - “borrowing member” means, subject to sub-paragraphs (2A) and (2B) and paragraph 29(2) below, an individual who is indebted to the society— in respect of a loan which is fully secured on land; or if the rules of the society so provide, in respect of a loan which is (within the meaning of the rules) substantially secured on land; - “shareholding member” means a person who holds a share in the society. (2A) If the rules of a building society so provide, an individual shall cease to be a borrowing member at any time if at that time the society— (a) takes possession of, or exercises its power of sale in relation to, the whole or any part of the land on which the loan is secured; or (b) obtains an order for foreclosure absolute or, in Scotland, foreclosure in respect of the whole or any part of that land. (2B) Unless the rules of a building society so provide, an individual shall not be a borrowing member at any time if at that time the loan is owed to the society in equity rather than at law.

• (2) In sub-paragraph (3) of that paragraph—

• (a) in paragraph (b), after the words “may not” there shall be inserted the words “propose a resolution,”; and

• (b) in paragraph (c), after the words “may not” there shall be inserted the words “join in requisitioning a special meeting or”.

• (3) For paragraph 6 of that Schedule there shall be substituted the following paragraph—

(6) (1) The liability at any time of a shareholding member of a building society shall be limited to the amount which, at that time, has been actually paid, or is in arrear, on his shares in the society. (2) The liability at any time of a borrowing member of a building society shall be limited to the amount which, at that time, is payable under the mortgage or other security by which his indebtedness to the society in respect of the loan is secured.

• (4) For sub-paragraph (2) of paragraph 29 of that Schedule (borrowing members' resolutions) there shall be substituted the following sub-paragraph—

(2) For the purposes of this Part of this Schedule, an individual who is indebted to a building society in respect of a loan fully secured on land is not a borrowing member of the society at any time if at that time the amount of his mortgage debt is less than the prescribed amount.

Capacity etc

3

• (1) In subsection (8) of section 5 of the 1986 Act—

• (a) for paragraph (b) there shall be substituted the following paragraph—

(b) Part II makes provision with respect to the capacity of a society and the powers of its directors to bind it; and

; and

• (b) for the words from “and in this section” to the end there shall be substituted the words “and in this section “scheduled”, with reference to requirements for establishment, means contained in that Schedule”.

• (2) For Part II of Schedule 2 to the 1986 Act there shall be substituted the provisions set out in Schedule 1 to this Act (capacity of society and power of directors to bind it).

The lending limit

4

For section 6 of the 1986 Act there shall be substituted the following section—

(6) (1) A building society shall secure that the difference between— (a) the value of X on any quarter day; and (b) the value of Y on that day or the value of Y on the immediately preceding quarter day, whichever is the greater, does not exceed 25 per cent of that value of X. (2) For the purposes of subsection (1) above— X = the difference between the total assets of the society and any subsidiary undertakings of the society as shown in the society’s accounts and the aggregate of— (a) the liquid assets of the society and any such undertakings as shown in those accounts in pursuance of regulations under section 73(7); (b) the fixed assets of the society and any such undertakings as so shown; and (c) where any such undertakings are insurance companies within the meaning of the Insurance Companies Act 1982, such of their assets as shown in those accounts as represent long term insurance funds; and Y = the principal of, and interest accrued on, loans which are owed to the society or any subsidiary undertaking of the society and are fully secured on residential property; and for the purposes of this subsection the total assets of a society and any subsidiary undertakings of the society shall be taken to be increased by the amount of any provision made for bad or doubtful debts of the society or any such undertaking. (3) Any loans owed to the society or any subsidiary undertaking of the society shall be disregarded for the purposes of the definition of “Y” in subsection (2) above to the extent that they are not included in the total assets of the society and any such undertakings as shown in the society’s accounts. (4) Any reference in subsection (2) or (3) above to anything being shown in a society’s accounts shall be construed— (a) in relation to a quarter day on which a financial year of the society ends, as a reference to its being shown in the accounts prepared by the society for that year; (b) in relation to any other quarter day, as a reference to its being shown in the accounts which would have been prepared by the society for the year ending on that day if that year were a financial year of the society. (5) If a building society fails to comply with the requirement imposed by subsection (1) above— (a) the powers conferred on the Commission by section 36 shall become exercisable in relation to the society; but (b) the failure shall not affect the validity of any transaction or other act. (6) The Treasury may by order substitute for the percentage specified in subsection (1) above such greater percentage (not greater than 40 per cent) as appears to them to be appropriate; and an order under this subsection may make such supplementary, transitional and saving provision as appears to the Treasury to be necessary or expedient. (7) The Commission may, with the consent of the Treasury, by order— (a) modify subsections (2) and (3) above in their application to assets of subsidiary undertakings; (b) apply those subsections to corresponding assets of associated undertakings; or (c) modify those subsections in their application to such assets. (8) An order under subsection (7) above may make— (a) different provision for different circumstances; (b) provision for particular assets of undertakings to be disregarded; and (c) such supplementary, transitional and saving provision as appears to the Commission to be necessary or expedient. (9) The power to make an order under subsection (6) or (7) above is exercisable by statutory instrument. (10) No order shall be made under subsection (6) above unless a draft of the order has been laid before and approved by a resolution of each House of Parliament. (11) A statutory instrument containing an order under subsection (7) above shall be subject to annulment in pursuance of a resolution of either House of Parliament. (12) In this section “long term insurance funds”, in relation to an insurance company within the meaning of the Insurance Companies Act 1982, means funds maintained by it— (a) under section 28(1)(b) of that Act (assets attributable to long term business); or (b) where it is incorporated in a country or territory outside the United Kingdom, under the corresponding provisions of the law of that country or territory. (13) Where a loan is owed to a lending syndicate of which a building society or connected undertaking of a building society is a member, so much of the loan as is referable to the society’s or undertaking’s participation in the syndicate shall be treated for the purposes of this section and sections 6A and 6B as a loan owed to the society or undertaking. (14) In this section and section 7— - “accounts”— in relation to a building society without subsidiary undertakings, means individual accounts under subsection (1) of section 72; in relation to such a society with such undertakings, means group accounts under subsection (2) of that section; - “quarter day”, in relation to a building society, means a day on which a financial year of the society ends, or a day which is three months, six months or nine months after such a day; and references to any value on a quarter day are references to that value at the close of business on that day. (15) If an agreement between the Commission and a building society so provides, the definition of “quarter day” in subsection (14) above shall have effect in relation to the society as if for any reference to a number of months there were substituted a reference to a number of days specified in the agreement.

Loans secured on land

5

After section 6 of the 1986 Act there shall be inserted the following section—

(6A) (1) For the purposes of this Act a loan is secured on land if it is secured by— (a) a mortgage of a legal estate in land in England and Wales or Northern Ireland; (b) a heritable security over land in Scotland; or (c) a qualifying security over land in an EEA country or territory other than the United Kingdom. (2) For the purposes of this Act a loan is also secured on land if— (a) it is secured by a mortgage of an equitable interest in land in England and Wales or Northern Ireland; (b) the equitable interest is an equitable interest in land of a description, and is created in circumstances, prescribed in an order made by the Commission with the consent of the Treasury; and (c) any conditions prescribed in the order are complied with; and an order under this subsection may apply in relation to securities held by or on behalf of building societies or connected undertakings of a description specified in the order, or securities held by or on behalf of all such societies or undertakings other than those of a description so specified. (3) For the purposes of this Act— (a) a loan shall be treated as secured by a mortgage of a legal estate in registered land in England and Wales or Northern Ireland notwithstanding that the loan is made before the mortgagor is registered as proprietor of the estate; and (b) a loan shall be treated as secured by a heritable security over land in Scotland notwithstanding that the loan is made before title to that land has been transferred to the debtor in the heritable security. (4) The Commission may, with the consent of the Treasury, by order provide for any provisions of this Act to have effect in relation to loans secured on land outside the European Economic Area with such modifications as appear to the Commission to be appropriate. (5) An order under subsection (2) or (4) above may make such incidental, supplementary and transitional provision as appears to the Commission to be necessary or expedient. (6) The power to make an order under subsection (2) or (4) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament. (7) In this section and section 6B— - “EEA country or territory” means a country or territory in the European Economic Area; - “qualifying security”, in relation to land in an EEA country or territory other than the United Kingdom and a loan, means a security over the land which— acknowledges, and requires repayment of, the loan; and secures repayment of the loan on the land; and for the purposes of this section and that section, the Channel Islands, the Isle of Man and Gibraltar shall be treated as included in the European Economic Area. (8) In this Act “land”, in the expression “loan secured on land”, means— (a) land in an EEA country or territory; and (b) in so far as land in any other country or territory is, under any provision of this Act, land on which loans may be secured, land in that other country or territory.

Loans fully secured on land

6

After section 6A of the 1986 Act there shall be inserted the following section—