Charities Bill [HL]

moved Amendment No. 61:"After Clause 26, insert the following new clause—"    ““RESTRICTIONS ON MORTGAGING (1)   Section 38 of the 1993 Act (restrictions on mortgaging) is amended as follows. (2)   For subsections (2) and (3) substitute— ““(2)   Subsection (1) above shall not apply to a mortgage of any such land if the charity trustees have, before executing the mortgage, obtained and considered proper advice, given to them in writing, on the relevant matters or matter mentioned in subsection (3) or (3A) below (as the case may be). (3)   In the case of a mortgage to secure the repayment of a proposed loan or grant, the relevant matters are— (a)   whether the loan or grant is necessary in order for the charity trustees to be able to pursue the particular course of action in connection with which they are seeking the loan or grant; (b)   whether the terms of the loan or grant are reasonable having regard to the status of the charity as the prospective recipient of the loan or grant; and (c)   the ability of the charity to repay on those terms the sum proposed to be paid by way of loan or grant. (3A)   In the case of a mortgage to secure the discharge of any other proposed obligation, the relevant matter is whether it is reasonable for the charity trustees to undertake to discharge the obligation, having regard to the charity’s purposes. (3B)   Subsection (3) or (as the case may be) subsection (3A) above applies in relation to such a mortgage as is mentioned in that subsection whether the mortgage— (a)   would only have effect to secure the repayment of the proposed loan or grant or the discharge of the proposed obligation, or (b)   would also have effect to secure the repayment of sums paid by way of loan or grant, or the discharge of other obligations undertaken, after the date of its execution. (3C)   Subsection (3D) below applies where— (a)   the charity trustees of a charity have executed a mortgage of land held by or in trust for a charity in accordance with subsection (2) above, and (b)   the mortgage has effect to secure the repayment of sums paid by way of loan or grant, or the discharge of other obligations undertaken, after the date of its execution. (3D)   In such a case, the charity trustees must not after that date enter into any transaction involving— (a)   the payment of any such sums, or (b)   the undertaking of any such obligations, unless they have, before entering into the transaction, obtained and considered proper advice, given to them in writing, on the matters or matter mentioned in subsection (3)(a) to (c) or (3A) above (as the case may be).”” (3)   In subsection (4) (meaning of ““proper advice””)— (a)   for ““subsection (2)”” substitute ““this section””; and (b)   for ““the making of the loan in question”” substitute ““relation to the loan, grant or other transaction in connection with which his advice is given””.”” The noble Lord said: My Lords, I beg to move the amendment standing in the name of my noble friend Lady Scotland of Asthal and to speak to Amendment No.101. These are deregulatory amendments. At present, the grant of a mortgage over charity land requires the Charity Commission’s or the court’s consent unless the mortgage is being granted by way of security for the repayment of a specific loan. Where the mortgage is granted for that purpose, the commission’s or the court’s consent is not needed provided that the trustees of the charity follow what I shall call the no-consent procedure. This requires the trustees to take advice on certain specified matters such as the charity’s ability to repay the loan on the terms proposed. The advice-taking requirement is concerned with whether it is in the interests of the charity to take out the loan. In Committee the noble Lord, Lord Phillips, tabled amendments intended to enable a mortgage over charity land to be granted via the no-consent procedure in one other circumstance. That circumstance was where the mortgage is granted by way of security for the repayment of a conditional grant made to a charity. The Government accept that the current scope of the no-consent procedure is more limited than is necessary for effective regulation. We agree that the circumstances in which a mortgage over charity land can be given without the need for the court’s or the commission’s consent ought to be extended. We propose to go a little further than the noble Lord, Lord Phillips, and to allow trustees to avoid the need for consent provided they follow the no-consent procedure to a mortgage which is granted to securing the discharge of any obligation—not just the repayment of a loan or a grant. Liability under a guarantee is an example of another type of obligation which could be secured by a mortgage. Our amendments will also remove another restriction on the scope of the no-consent procedure. It is common practice for a commercial lender to take mortgages which are intended to secure not only the loan which is under immediate consideration but also of any future loan which the lender might make to the borrower. This approach saves administrative and legal expense. But the grant of a mortgage of this nature over charity land has been understood to require the court’s or the commission’s consent every time a future loan is made. This is on the basis that a mortgage can be granted under the no-consent procedure only if it is intended to secure solely the discharge of a loan on which trustees have taken advice before the grant of the mortgage. Section 38 was not drafted with such mortgages in mind and this understanding of the law is the source of frequent complaint to the Charity Commission. Our amendments will have the effect of bringing this sort of mortgage within the no-consent procedure. But a condition is that before a new loan can become validly secured by this sort of mortgage, the trustees will have to obtain and consider the same sort of advice that they would have had to obtain and consider in relation to the original loan. The amendments to Section 39 of the Charities Act 1993 are consequential on the amendments to Section 38, the effect of which I have just described. I apologise for the length of that explanation, but I thought that it might be useful to your Lordships in terms of the amendment’s complexity and so on.