Building Societies

Building Societies are institutions which have sprung into existence in comparatively recent times, and although originally designed more particularly for the working classes, they have attained a very considerable position, not only as a profitable investment for savings for all classes of the community, but as a means of acquiring, by borrowing on favourable terms, freehold, leasehold, or copyhold properties.

Their principal object is to raise a fund, out of which the members can purchase properties of the above description by advances made to them out of the society's funds, such advances being repayable (both principal and interest) by fixed periodical instalments.

It is difficult to state accurately the precise origin of these societies, but institutions of a somewhat similar character are believed to have existed in a rude form amongst the Greeks in the days of the republics; amongst the Anglo-Saxons in Great Britain, and also in the South Sea Islands. Associations to enable their members to build or purchase dwelling houses were known in Birmingham as far back as the year 1781. In January, 1809, the "Greenwich Building Society" was formed under certain rules and regulations, the object being to raise a fund, by the monthly subscriptions of its members, which was to be laid out in building houses, and the dividing of the same among the subscribers under and subject to such rules.

These societies were formerly founded and regulated in this country under the old Friendly Societies' Acts, the principal one being the 6 and 7 William IV., c. 32; but their increasing popularity and importance induced the Legislature in the year 1874 to pass a special Act of Parliament for their regulation, by which many important privileges (hereafter more particularly mentioned) are conferred on building societies.

The existing Building Society Acts are the 37 and 38 Victoria, c. 42 (the one above referred to as passed in the year 1874, and known as the Building Societies Act 1874), and the Acts 40 and 41 Victoria, c. 63, and 47 and 48 Victoria, c. 41, known as the "Amending Acts." The first named is the principal Act, and under it societies are formed, and on their rules being duly registered as required by the Act, and certified by the Registrar, they possess a corporate character, and enjoy the protection of limited liability; shares can be transferred without payment of stamp duty, and reconveyances of the mortgaged property by deed are rendered unnecessary, a simple receipt for the mortgage money endorsed on the mortgage deed answering the purpose of a reconveyance. Building societies so constituted have also power, if authorised by their rides, to borrow money within certain defined. limits.

Building Societies are either permanent or terminating.

A Permanent Society, as the name implies, may last for ever, investing shares being issued, upon which payments are made by the several members either in one or several sums, upon which interest accumulates, or else it is paid out to the member at his election. Advances are made to borrowers (either members of the society or strangers), repayable by periodical instalments, including principal and interest.

A Terminating Society, on the other hand, is one which by its rules is to terminate at a fixed period, or when a certain result has been attained. Upon each share a fixed subscription is payable throughout the Society's existence; this forms a fund adequate to give every member a sum fixed by the rules at its foundation. In some societies the advances are made by ballot, in others by sale; in others again by alternate ballot and sale. There are a number of societies throughout the country of this character known as "Starr Bowkett societies," the name being adopted from a Mr. Starr, who was largely instrumental in forming them in the first instance.

The "Industrial and Provident Societies Act 1876," repealing the Acts of 1862 and 1871, enables societies to be formed for the purpose of buying and selling land, with power to mortgage, lease, or build. These are known as Co-operative Building Societies.

Freehold Land Societies also in form come under the "Building Societies Acts." Subscriptions are received in these societies in the same way as in building societies, and out of the funds so subscribed estates in land are purchased, which are afterwards split into lots suitable to the member's requirements, and other improvements are effected, the cost of which and of the original conveyance to the society is distributed over the whole property, and added to the purchase money of each lot. Members of these societies are thus enabled to acquire small pieces of land at wholesale price. A building society cannot in law legally hold land except by way of security; therefore, the arrangements above described respecting freehold land societies have to be carried out through the medium of trustees.

As regards disputes from time to time arising in these societies on the construction of their rules or, otherwise, a convenient and economical mode of adjusting them is provided by the Act, viz. arbitration.

Dissolution of these societies, whether permanent or terminating, may take place on the occurrence of any event declared by the rules to have that effect; or they may be dissolved in any manner prescribed by their rules, or by the Act, or they may be wound up, either voluntarily or compulsorily, under the Companies Acts 1862-1867.

Building societies exist in Scotland, and also in the United States. In the latter country there are many thousands established. The funds are lent to borrowing members, who pay a premium for that privilege in addition to interest. Fines are also exacted for non-payment of subscriptions, as is the case generally and everywhere in both classes of societies.

A Royal Commission having been appointed in the year 1871 to inquire into the operations of building societies, the principal Act of 1874 (above referred to) may be considered as the outcome of their report made to Parliament. Periodical returns and reports have to be sent by each society to the Registrar annually. It is supposed that half a million of persons are directly or indirectly interested in building societies.