London council loses High Court fight over mortgagee protection clause and affordable housing obligations in s.106 agreement

The city council was seeking an injunction order requiring the properties in West London remain affordable housing after the flats were sold on the private market.

However, in Westminster City Council v Gems House Residences Chiltern Street Limited & Anor [2025] EWHC 1789, His Honour Judge Hodge KC preferred the defendant's submissions.

The case centred around whether the first defendant, Gems House Residences Chiltern Street Limited, was entitled to claim the benefit of a mortgagee exclusion clause in the s.106 agreement as a person deriving title through a mortgagee of a ‘Registered Social Provider’.

"The resolution of this issue depends upon whether the status of the mortgagor as a ‘Registered Social Provider’ (as defined) falls to be determined as at the date the mortgage was created or the later date when the mortgagee sold the leases of all 16 flats to the first defendant," HHJ Hodge said.

The background to the case goes back to April 2013 when Westminster granted full planning permission for a 60-flat, mixed-use development on Paddington Street and Chiltern Street, W1.

The permission was subject to a s.106 agreement under the Town and Country Planning Act 1990, which required 16 affordable housing units in the completed development.

In July 2016, all 16 leases for the properties were transferred to Kinsman Housing Ltd (Kinsman), which at that time was a registered provider of social housing.

However, Kinsman was later de-registered by the Regulator of Social Housing in August 2023 after breaching the Governance & Financial Viability Standard 2015.

The 16 affordable homes were then bought by Gems House Residences Chiltern Street for approximately £12.6m.

In April 2024, Westminster sought a declaration that the defendants were bound by planning obligations contained within the s.106 agreement on affordable housing.

The city council also obtained an interim injunction at the time, requiring the flats to be used as affordable housing until the trial.

Following an injunction hearing last month, HHJ Hodge concluded that the mortgagee exclusion clause “applies to a mortgagee of a registered social provider from the time the mortgage is granted; and it continues to apply even if the provider in question is subsequently deregistered.

“The root of the mortgagee's title remains a mortgage granted by a registered social provider; and the same applies to any third-party disponee of the mortgaged property by the mortgagee.

“In my judgment, clause 10.1.1 falls to be read in the sense that it applies to any person deriving title through any mortgagee to whom a registered social provider has granted a mortgage, rather than in the alternative sense of any mortgagee of a registered social provider for the time being.”

HHJ Hodge dismissed Westminster's claim, stating: "Not without some regret at the consequent loss of much-needed affordable housing, I have no hesitation in preferring the defendants’ submissions to those advanced on behalf of the claimant."

“I do so because, in my judgment, the defendants’ construction is consistent with the rationale and purpose of the mortgagee exclusion clause whilst the claimant’s construction is not. That rationale and purpose is accurately identified by the claimant at paragraph 76 (d) of the skeleton argument of Mr Hutchings and Mr Feeney, as follows:

The primary aim of subclause 10.1.1 was to encourage sufficient commercial lending for a registered provider to acquire the long leases of the affordable housing units. It achieved this by permitting the lender upon a default to realise its security by selling the social housing assets at open market value.

"I consider that this aim is better achieved by the defendants’, rather than the claimant’s, construction of clause 10.1.1."

The judge discharged the interim injunction granted in October 2024 and invited the parties to seek to agree a substantive order to give effect to this judgment, which should address the effect of the injunction, and also provide for the costs of and incidental to this claim.

Adam Carey