Article 3 Appropriate security
This article makes provision with respect to what constitutes appropriate security for the purposes of section 14A(2)(a) and (b).
Where a building society participates in syndicated lending as a member of the lending syndicate, the syndicated lending is appropriately secured if it is secured by security of one or more of the kinds described below in respect of which the requirements of paragraphs (5) to (8) below are satisfied—
a mortgage of a legal estate or, as provided under section 10(6)f1, an equitable interest in land in England and Wales or Northern Ireland,
a heritable security over land in Scotland, and
an instrument which acknowledges a debt, obliges the debtor to pay it and secures payment of the debt by means of a form of security equivalent to the kind mentioned in sub-paragraphs (a) and (b) above, comprising title to or an interest in or over land situated in any country or territory designated under section 14(1) (power to make advances secured on land overseas)f2.
Where a building society participates in syndicated lending as a sub-participant, the society’s rights as such a participant are appropriately secured if they are secured by a mortgage (or equivalent form of security) of all the right, title and interest of the participating member of the lending syndicate in and to security of the kind described in paragraph (2) above in respect of which the requirements of paragraphs (5) to (8) below are satisfied.
In paragraph (3) above “the participating member of the lending syndicate” means the member of the lending syndicate with whom the society has entered into an arrangement by virtue of which it is a sub-participant.
For syndicated lending or rights as a sub-participant to be appropriately secured the society must be satisfied that the security described in paragraph (2) above is sufficient, that is to say—
where all sums due to the borrower under the terms of the loan have been advanced at the time the society becomes a member of the lending syndicate or a sub-participant (“the relevant time”), the society must satisfy itself at the relevant time that the amount of the loan outstanding does not exceed the value of the security at that time;
where at the relevant time some but not all of the sums which may become due to the borrower under the terms of the loan have been advanced, the society must satisfy itself at the relevant time—
that the amount of the loan outstanding does not exceed the value of the security at the relevant time; and
that the maximum amount of the loan which may be outstanding immediately after the time of the advance of the final sum due to the borrower under the terms of the loan will not exceed the expected value of the security immediately after that time; and
where at the relevant time no sum has been advanced to the borrower under the terms of the loan, the society must satisfy itself at the time when it first contributes to the sum advanced (whether it contributes directly or by payment of a corresponding amount to the participating member of the lending syndicate (as defined in paragraph (4) above))—
that the amount of the loan outstanding immediately after the time of the advance of the sum to which it is contributing will not exceed the value of the security immediately after that time; and (if different)
that the maximum amount of the loan which may be outstanding immediately after the time of the advance of the final sum due to the borrower under the terms of the loan will not exceed the expected value of the security immediately after that time.
In the case of a loan under the terms of which sums may be advanced to the borrower from time to time (that is to say without a specified time for the advance of a final sum under the terms of the loan), the requirements of paragraph (5)(b)(ii) or (c)(ii) above are that the maximum amount of the loan which may be outstanding at any time will not exceed the expected value of the security at that time.
If paragraph (5)(b)(ii) or (c)(ii) or (6) above applies, and the society is not satisfied as to the requirements of those provisions, the society may nevertheless be satisfied that the security is sufficient for the purposes of paragraph (5) or (6) if—
the arrangements under which the society is participating in the syndicated lending provide that the society cannot be called upon to make any further contribution to the sums to be advanced to the borrower under the terms of the loan unless at the time it makes the contribution the society satisfies itself as to the requirements mentioned in sub-paragraph (ii) below; and
at the time it makes any such contribution the society is satisfied that the amount of the loan outstanding immediately after the time of the advance of the sum to which it is contributing will not exceed the value of the security immediately after that time.
Where a society is not satisfied that the value of any security is sufficient in accordance with the preceding paragraphs of this article it may, subject to article 4(3) below, be so satisfied if it is satisfied that the deficiency is secured by additional security of a description prescribed by order under section 12(3) for the purposes of section 11(4)(c), or treated as such by virtue of paragraph 13 of Schedule 20.
In this article—
references to the value of the security are to the value of the security constituted by the estate or interest or heritable security or title or, as the case may be, the combined securities; and in calculating the value of any security there shall be deducted any outstanding amount secured on the same estate or interest or heritable security or title or, as the case may be, on any combination of them; and
references to the outstanding amount at any time of any loan are to the total amount outstanding at that time in respect of—
the principal of the loan;
interest on the loan, and
any other sum which the borrower is obliged to pay the lender under the terms of the loan.
Appropriate security within the meaning of this article may be held by the society (alone or jointly) or by a trustee for the society (as sole beneficiary or one of joint beneficiaries) and if held by the society may be held on trust for the society and others.