Westminster City Council v Gems House Residences Chiltern Street Limited & Anor

A mortgagee exclusion clause in a Town and Country Planning Act 1990 section 106 agreement may protect a purchaser deriving title through a mortgagee of a registered social provider even where the provider is later deregistered.

The relevant status is ordinarily determined when the mortgage is granted, because the exclusion exists to encourage lending against affordable housing leases and to permit effective realisation of security. The court must construe the words actually agreed, read in their contractual and regulatory context. No general anti-avoidance principle or presumption applies to section 106 agreements.

Westminster City Council sought declarations and an injunction enforcing affordable housing obligations contained in a section 106 agreement concerning 16 flats. The first defendant acquired the leasehold interests from a mortgagee in February 2024. The mortgage had originally been granted in 2015 by a registered provider, but the provider through which the mortgage had later been novated was deregistered in September 2023.

The central issue was whether the first defendant derived title through a mortgagee of a registered social provider under clause 10.1.1 of the agreement. The competing constructions concerned whether the provider’s status was tested when the mortgage was created or when the mortgagee disposed of the flats.

1. Claim dismissed; injunction discharged. The first defendant was entitled to rely on clause 10.1.1 and was not bound by the affordable housing restrictions in Schedule One.
2. The relevant phrase was “any person deriving title through any mortgagee of a Registered Social Provider”. It had to be read in the context of clause 10.1, the agreement as a whole, the planning objectives and the regulatory regime for social housing.
3. The words were open to both competing temporal constructions. Commercial consequences therefore assisted the court in identifying which construction best fitted the rationale and purpose of the mortgagee exclusion clause. That rationale was to encourage sufficient lending to enable registered providers to acquire the long leases of affordable housing units and to allow lenders to realise their security on default.
4. The qualifying status of the provider was accordingly fixed when the original mortgage was granted. London District was registered on 19 August 2015, when it granted the mortgage to Securities. The exclusion continued to apply notwithstanding Kinsman’s later deregistration and the subsequent sale to the first defendant.
5. The same conclusion applied to a disposal by a receiver. The relevant date would be the grant of the mortgage, rather than the receiver’s appointment or later disposal. The judge left unresolved whether Kinsman also had to be registered at the date of the 2016 novation, since it was registered then.
6. The court rejected the Council’s reliance on statutory moratorium protection and analogies from other cases. The agreement contained no anti-avoidance principle or presumption requiring a construction that preserved the affordable housing restrictions in all circumstances. Alternative drafting used in other section 106 agreements could not determine the meaning of this agreement.

First instance decision. The court dismissed the claim and discharged the interim injunction made on 30 October 2024.