The Building Societies (Commercial Assets and Services) Order 1988

Made: 30th June 1988

Coming into force: 30th August 1988

The Treasury, in exercise of the pOwers conferred on them by sections 19 and 34(2), (7), (8) and (10) of the Building Societies Act 1986[^f00001], and of all other powers enabling them in that behalf, hereby make the following Order, a draft of which has been laid before and approved by resolution of each House of Parliament:

Title and commencement

1

This Order may be cited as the Building Societies (Commercial Assets and Services) Order 1988 and shall come into force at the expiration of the period of two months beginning with the day on which this Order is made.

Interpretation

2

In this Order, except where the context requires otherwise—

• “the Act” means the Building Societies Act 1986;

• “the 1987 Order” means the Building Societies (Limited Credit Facilities) Order 1987[^f00002]; and

• “society” means a building society.

Class 3 assets

3

• (1) A society may, subject to the provisions of this Order, acquire, hold and dispose of the forms of property described in Section A of each Part of Schedule 1 below, as class 3 assets for the purposes of Part III of the Act, and for the purposes of the Act the power to acquire, hold and dispose of a description of property specified in any Part of that Schedule shall be treated as a separate power from the power to acquire, hold and dispose of a description of property specified in any other Part of that Schedule.

• (2) Section B of each Part of Schedule 1 below has effect for the purpose of specifying the conditions and restrictions subject to which a society may acquire, hold and dispose of property of the description specified in Section A of that Part of that Schedule.

• (3) Section C of each Part of Schedule 1 below has effect for the purpose of specifying, in relation to property of the description specified in Section A of that Part of that Schedule, how the aggregate value of that property is to be determined for the purposes of section 20 of the Act (commercial asset structure requirements for building societies) and, in the case of Part III of that Schedule, also contains provision whereby sums in addition to that value are to be taken into account for the purposes of that section.

Amendment of legislation relating to commercial assets

4

• (1) Schedule 2 to this Order shall have effect for the purpose of amending section 15 (loans for mobile homes) of the Act.

• (2) Schedule 3 to this Order shall have effect for the purpose of amending section 16 (loans to individuals) of the Act.

• (3) Schedule 4 to this Order shall have effect for the purpose of amending the 1987 Order.

Variation of Schedule 8 to the Act

5

The Parts of Schedule 8 (powers to provide services) to the Act are hereby varied so as to have effect as set out in Schedule 5 below.

Transitional provision

6

• (1) Nothing in this Order shall—

• (a) require a society to dispose of any property or rights held by it immediately before this Order came into force,

• (b) take away the power of a society to complete, or do such things as are reasonably necessary to enable it to complete, the performance of existing obligations, or

• (c) take away—

• (i) the power of a society which, at the time when this Order comes into force, has a qualifying asset holding to continue to invest in or continue to support any body corporate, or

• (ii) the power of a society which, at the time when this Order comes into force, does not have a qualifying asset holding to continue to invest in or continue to support any body corporate other than a subsidiary formed for the purpose of exercising the power in paragraph 9 (establishment and management of unit trust schemes for the provision of pensions) of Part I of Schedule 8 to the Act as it was before this Order came into force.

• (2) Nothing in this Order shall take away the power of a society, the memorandum of which empowered it before this Order came into force to provide estate agency services as specified in paragraph 13 (estate agency services) of that Part of that Schedule, to provide those services as so specified, pending the taking effect of the first alteration of the powers of the society under paragraph 4 (requirements for alteration of purpose, powers and rules) of Schedule 2 to the Act.

Consequential revocation and amendment

7

• (1) The Building Societies (Provision of Services) Order 1987[^f00003], the Building Societies (Provision of Services) (No. 2) Order 1987[^f00004], the Building Societies (Provision of Services) (No. 3) Order 1987[^f00005]and the Building Societies (Provision of Services) (No. 4) Order 1987[^f00006] are hereby revoked.

• (2) The Building Societies (Banking Institutions) Order 1987[^f00007]is hereby amended by the deletion, in article 2 thereof (which amends provisions of the Act), of paragraph (b) and of the word“; and” at the end of paragraph (a).

SCHEDULE 1 — CLASS 3 ASSETS

PART 1 — RESIDUAL MORTGAGE DEBTS

SECTION A

1

The description of property specified in this Part of this Schedule is that of residual mortgage debts.

2

In this Part of this Schedule “residual mortgage debts”, in relation to a society, means mortgage debts which arose from lending by the society and the right to be paid which has become vested in a person other than the society.

SECTION B

SECTION C

The aggregate value of any residual mortgage debt owed to a society shall, for the purposes of section 20 of the Act, comprise the aggregate of the amounts outstanding in respect of—

• (a) the principal of the debt,

• (b) the interest on the debt, and

• (c) any other sums which the debtor is obliged to pay the society under the terms of any agreement under which the debt was incurred.

PART II — MORTGAGE FINANCE RIGHTS

SECTION A

SECTION B

SECTION C

The aggregate value of any mortgage finance right held by a society shall, for the purposes of section 20 of the Act, comprise the aggregate of the amounts outstanding in respect of—

• (a) the principal sum or sums the right to receive which is comprised in the mortgage finance right,

• (b) any interest payable to the Society in respect of the mortgage finance right, and

• (c) any other sum which the Society has the right to receive under the issue terms relating to the mortgage finance right.

PART III — LEASABLE CHATTELS

SECTION A

SECTION B

SECTION C

PART IV — BRIDGING DEBTS

SECTION A

SECTION B

A society may make a bridging loan or otherwise acquire or hold a bridging debt only where each relevant interest to which it relates is an interest in relation to land in a country or territory where the society has power to make advances secured on land (whether under section 10 (advances secured on land) or section 14 of the Act).

SECTION C

The aggregate value of any bridging debt owed to a society shall, for the purposes of section 20 of the Act, comprise the aggregate of the amounts outstanding in respect of—

• (a) the principal sum lent,

• (b) any interest on that principal sum, and

• (c) any other sums required to be paid to the society under the terms of the bridging loan under which the bridging debt is owed.

SCHEDULE 2 — AMENDMENT OF SECTION 15 OF THE ACT

1

At the end of section 15(5)(b) there shall be inserted the words: “and also the cost of leasable chattels bailed under any current leasing agreement between the society and that individual”.

2

In section 15(6) there shall be substituted for the word “is” the words: “and also the cost of leasable chattels bailed under any current leasing agreement between the society and any one of the joint borrowers are”.

3

In section 15(12), after the definition of “facility limit”, the following definition shall be inserted:

• “leasable chattels”, “bailed” and “leasing agreement” have the meanings which they respectively bear in Part III of Schedule 1 to the Building Societies (Commercial Assets and Services) Order 1988 and “cost”, in respect of any leasable chattel bailed by a building society, means the price at which it was acquired by the society;

SCHEDULE 3 — AMENDMENT OF SECTION 16 OF THE ACT

1

At the end of section 16(3) there shall be inserted the words: “and neither do bridging loans made under Part IV of Schedule 1 to the Building Societies (Commercial Assets and Services) Order 1988”.

2

At the end of section 16(5)(b) there shall be inserted the words: “and also the cost of leasable chattels bailed under any current leasing agreement between the society and that individual”.

3

At the end of section 16(6)(c) there shall be inserted the words: “and also the cost of leasable chattels bailed under any current leasing agreement between the society and that individual”.

4

In section 16(7) there shall be substituted for the word “is” the words: “and also the cost of leasable chattels bailed under any current leasing agreement between the society and any one of the joint borrowers are”.

5

For section 16(17) the following subsection shall be substituted:

(17) In this section— - “facility limit” has the meaning which it bears in the Building Societies (Limited Credit Facilities) Order 1987; and - “leasable chattels”, “bailed” and “leasing agreement” have the meanings which they respectively bear in Part III of Schedule 1 to the Building Societies (Commercial Assets and Services) Order 1988 and “cost”, in respect of any leasable chattel bailed by a building society, means the price at which it was acquired by the society.

SCHEDULE 4 — AMENDMENT OF THE 1987 ORDER

1

1n article 2 (interpretation), before the definition of “society”, the following definition shall be inserted:

• “leasable chattels”, “bailed” and “leasing agreement” have the meanings which they respectively bear in Part III of Schedule 1 to the Building Societies (Commercial Assets and Services) Order 1988 and “cost”, in respect of any leasable chattel bailed by a society, means the price at which it was acquired by the society;

2

In article 6 (limits on balances)—

• (a) at the end of paragraph (2) there shall be inserted the words: “and also the cost of leasable chattels bailed under any current leasing agreement between the society and any of them”, and

• (b) in subparagraph (b) of paragraph (4)—

• (i) at the end of paragraph (i) the word “and” shall be deleted,

• (ii) at the end of paragraph (ii) for the word “society.” there shall be substituted the words “society, and”, and

• (iii) after paragraph (ii) there shall be inserted the following paragraph:

(iii) the cost of leasable chattels bailed under any current leasing agreement between the society and the facility account holder.

3

In article 7 (class 3 asset limits), in paragraph (b), for the words “money transmission” there shall be substituted the word “banking”.

SCHEDULE 5 — THE PARTS OF SCHEDULE 8 TO THE BUILDING SOCIETIES ACT 1986, AS VARIED BY THIS ORDER

PART 1 — THE SERVICES

1

Banking services.

2

Investment services.

3

Insurance services.

4

Trusteeship.

5

Executorship.

6

Land services.

PART II — GENERAL RESTRICTIONS ON SERVICES

PART III — RESTRICTIONS IN RELATION TO CERTAIN SERVICES

Banking services

Investment services

Trusteeship

Land services

PART IV — SUPPLEMENTARY

Powers–general

Powers–specific services

Banking-particular provisions

Land services-sanction

Interpretation

7

This Schedule is to be construed as relating only to the capacity of building societies to provide the services for the time being specified in it and not as making lawful any activity, whether of a building society or a subsidiary or other associated body of a building society, which would not be lawful apart from this Schedule.

8

In this Schedule—

• “arranging”, in relation to the performance of any activity, includes— arranging its performance on behalf of the person in respect of whom the activity is performed as well as the person who performs the activity, and acting as agent on behalf of either such person;

• “collective investment scheme” has the meaning which it bears in section 75 of the Financial Services Act 1986[^f00009];

• “corresponding membership right” has the meaning which it bears in section 18(17) of this Act;

• “development corporation” means any of the following bodies: in England, a development corporation within the meaning of the New Towns Act 1981[^f00010]; in Wales, the Development Board for Rural Wales established by section 1 of the Development of Rural Wales Act 1976[^f00011]and the Welsh Development Agency established by section 1 of the Welsh Development Agency Act 1975[^f00012]; in Scotland, a development corporation within the meaning of the New Towns (Scotland) Act 1968[^f00013]; in Northern Ireland, the Department of the Environment for Northern Ireland and the Northern Ireland Housing Executive referred to in article 3 of the Housing (Northern Ireland) Order 1981[^f00014];

• “estate agency work” has the same meaning as in the Estate Agents Act 1979[^f00015];

• “land services” means services relating to the acquisition, management, development or disposal of land;

• “leasable chattel” has the meaning which it bears in the Building Societies (Commercial Assets and Services) Order 1988, and “bailment” shall be construed accordingly;

• “local authority in Great Britain” means any of the following authorities: in England and Wales, a county council, a district council, a London borough council, a parish or community council, the Common Council of the City of London, and the Council of the Isles of Scilly; in Scotland, a local authority within the meaning of section 235 of the Local Government (Scotland) Act 1973[^f00016];

• “managing investments” means activity of the kind specified in paragraph 14 of Part II (activities constituting investment business) of Schedule 1 to the Financial Services Act 1986;

• “pension scheme” means— a retirement benefits scheme within the meaning of, and which is approved or a candidate for approval by the Commissioners of Inland Revenue for the purposes of, Chapter I of Part XIV of the Income and Corporation Taxes Act 1988^f00017, or a personal pension scheme within the meaning of, and which is approved or a candidate for approval by the Commissioners of Inland Revenue under, Chapter IV (personal pension schemes) of that Part of that Act, and for the purposes of this definition a scheme is a candidate for approval for the purposes of the first or, as the case may be, under the second of those Chapters if it has been prepared with a view to being so approved and steps are being taken towards obtaining that approval;

• “personal equity plan” means a plan for the purposes of section 333 (personal equity plans) of the Income and Corporation Taxes Act 1988;

• “the principal business of a building society” means the business of raising funds (whether by the issue of shares or receiving deposits) for the purposes of the society or of making advances secured on land;

• “relevant investment” means— any share or corresponding membership right in a body corporate, and any other asset, right or interest falling within any paragraph of Part I (investments) of Schedule 1 to the Financial Services Act 1986; and

• “transferable instrument” means— where the issuer of the instrument is a building society, an instrument which is a transferable bearer instrument or a transferable non-bearer instrument for the purposes of section 7 of this Act, and in any other case, an instrument which would, were the issuer a building society, be such a transferable bearer instrument or transferable non-bearer instrument.

Signed

David Lightbown — Mark Lennox-Boyd — Two of the Lords Commissioners of Her Majesty’s Treasury — 30th June 1988

Explanatory note

(This note is not part of the Order)

This Order empowers building societies to acquire, hold and dispose of four additional forms of commercial asset, and varies Schedule 8 to the Building Societies Act 1986 to increase the range of services which may be provided by societies.

Article 3 of and Schedule 1 to the Order extend the forms of property which a building society may acquire, hold and dispose of as Class 3 assets for the purposes of the commercial asset structure requirements of section 20 of the Act to include residual mortgage debts (on reacquisition of mortgages previously transferred by the society), rights under instruments relating to mortgages, personal property for leasing and rights arising from lending for bridging purposes, subject in the case of each type of asset to conditions and restrictions. Article 3(3) specifies how these assets are to be valued for the purposes of section 20, and article 4 and Schedules 2, 3 and 4 make consequential amendments to take the value of such assets where relevant into account in calculating the limits on mobile home loans under section 15, loans to individuals under section 16 and accounts under the Building Societies (Limited Credit Facilities) Order 1987.

Article 5 varies Schedule 8 to the Act by replacing it with a new Schedule (Schedule 5 to the Order) which extends the range of services which building societies may provide. Part I of Schedule 8 formerly defined in more specific terms those services which societies might adopt power to provide. The services previously specified were money transmission and foreign exchange, making or receiving payments as agents, managing mortgage investments and land, arranging for services relating to the acquisition or disposal of investments, giving investment advice, arranging for the provision of units in unit trust schemes, establishing and managing personal equity plans, arranging credit agreements, establishing and managing unit trust schemes for the provision of pensions, establishing and administering pension schemes, arranging and giving advice as to insurance, providing land surveys and valuations, estate agency and conveyancing services. Part II of Schedule 8 formerly comprised the restriction repeated on the provision of services abroad, and Part III contained further restrictions on particular services.

In the revised Schedule 8 as set out in Schedule 5 to the Order, the services which may be provided are described in Part Ii n terms largely following section 34(11) of the Act as banking services, investment services, insurance services, trusteeship, executorship and land services. Within this framework societies may provide any service which is not specifically restricted in the Schedule. Part II confines the power to provide services within the categories in Part I to services which are outside the scope of other provisions of the Act. Thus the power to make advances and loans, which is governed by Part III of the Act and forms part of the asset classification system in that Part, is excluded from the new powers in Schedule 8. Other powers similarly excluded (or excluded to a significant extent) are deposit-taking, acquisition of land or third party debts, acquisition and holding of shares or other commercial assets permitted under section 19 (including those covered by article 3 of this Order), acquisition of other investments and underwriting risks.

Where a power exists independently of Schedule 8, and a power under Schedule 8 overlaps the existing power, restrictions contained in the Schedule do not apply to the original power. For example, Section 17 allows a building society to hold and develop land as a commercial asset, subject to the conditions specified in that Section. Paragraph 4(h) of Part III of the new Schedule restricts the development of land to land which belongs to a local authority or development corporation or which is charged in favour of the developer to secure repayment of the costs of development, but this restriction has no application where a society is exercising power under section 17 to develop its own land.

Part III of Schedule 5 contains restrictions on individual services or elements of them. For example, specified banking services may be provided only to individuals. Services such as the administration of share issues, managing investments, establishment of personal equity plans and collective investment schemes, removal and storage of furniture, and management or development of land may only be provided by a building Society which has a qualifying asset holding. A society has a qualifying asset holding where the aggregate value of its total commercial assets is not less than £100 million. Management or development of land is also restricted to land which is to be used primarily for residential purposes. Part IV contains supplementary provisions relating to the scope of the powers to provide services as they apply both generally and in relation to specific services.

Footnotes

[^f00001]: 1986 c. 53; section 7 was amended by S.I. 1987/378 and 1670, sections 15 and 16 were amended by S.I. 1987/1975 and Schedule 8 was amended by the Banking Act 1987 (c. 22), Schedule 6, paragraph 26(8), and by S.I. 1987/172, 1670, 1848, 1976 and 2019.

[^f00002]: S.I. 1987/1975

[^f00003]: S.I. 1987/172

[^f00004]: S.I. 1987/1848

[^f00005]: S.I. 1987/1976

[^f00006]: S.I. 1987/2019

[^f00007]: S.I. 1987/1670

[^f00008]: 1987 c. 22

[^f00009]: 1986 c. 60; section 75 was amended by S.I. 1988/496 and 803 and Schedule 1 was amended by S.I. 1988/318, 496 and 803.

[^f00010]: 1981 c. 64

[^f00011]: 1976 c. 75

[^f00012]: 1975 c. 70

[^f00013]: 1968 c. 16

[^f00014]: S.I. 1981/156 (N.I. 3).

[^f00015]: 1979 c. 38; section 1 was amended by the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 (c. 73), Schedule 1, Part I, paragraph 40.

[^f00016]: 1973 c. 65

[^f00017]: 1988 c. 1