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

A mortgagee exclusion in a section 106 agreement is construed objectively, by reference to its language, structure, purpose and commercial consequences. Where the clause excludes a mortgagee of a registered social provider, its receiver, and persons deriving title through either, the linked limbs identify the mortgagee relationship created when the mortgage was granted.

Absent clear temporal language, the exclusion is not ambulatory. A purchaser deriving title through that mortgagee remains within the exclusion even if the social provider has later been deregistered under Housing and Regeneration Act 2008. A contrary construction, which preserves the mortgagee's protection but strips protection from its receiver, purchaser or later successors, is inconsistent with the clause's language and commercial purpose.

Westminster City Council, the local planning authority, granted planning permission for a mixed-use development and entered a section 106 agreement under the Town and Country Planning Act 1990. The agreement required 16 flats to be used as affordable housing, but clause 10.1.1 excluded a mortgagee of a registered social provider, its receiver, and persons deriving title through either from the affordable-housing obligations.

The registered social provider holding the long leases was deregistered under the Housing and Regeneration Act 2008. Its mortgagee then exercised its power of sale and assigned the leases to the first respondent. The Council contended that the purchaser was bound by the affordable-housing obligations because the provider was no longer registered when the sale occurred.

HHJ Hodge KC dismissed the Council's injunction claim: [2025] EWHC 1789 (Ch). The Council appealed. The central issue was whether the provider's qualifying status had to exist when the mortgage was created or when the mortgagee transferred the property.

1. Appeal dismissed. Lord Justice Holgate, with whom Lord Justice Miles and Sir Colin Birss agreed, upheld the judge's construction of clause 10.1.1 of the section 106 agreement.

2. The clause comprised three linked exclusions: the mortgagee of a registered social provider, a receiver appointed by that mortgagee, and a person deriving title through that mortgagee or receiver. The words “such mortgagee” in the latter two limbs referred back to the mortgagee identified in the first limb. There was no textual basis for imposing a different, continuing registration requirement on receivers or purchasers.

3. The relevant qualification was therefore determined when the mortgage relationship was created. A lender was a mortgagee of a registered social provider if the mortgagor then satisfied the agreement's definition of that term. That definition also covered an unregistered provider approved in advance by the Council. The later deregistration of a provider under Part 2 of the Housing and Regeneration Act 2008 did not remove the exclusion from the mortgagee, a receiver, or a successor deriving title through them.

4. The Council's interpretation was inconsistent with the first limb, which plainly protected the mortgagee without an ongoing registration condition. It would also produce unreasonable consequences: a purchaser paying market value after a mortgagee sale could later be forced to sell subject to the affordable-housing restriction merely because the former provider had been deregistered.

5. Paragraph 11.3 of Schedule 1 imposed a negative restriction, not a continuing positive duty requiring successors to maintain the units through a registered provider. The statutory moratorium regime was relevant context, but carried limited weight. The agreement had to make secured lending sufficiently available to enable affordable housing to be provided in the first place. The respondents were consequently not bound by the Schedule 1 affordable-housing obligations.

• Court of Appeal (Civil Division) — dismissed the Council's appeal and affirmed the construction that the mortgagee exclusion applied where the provider was a qualifying registered social provider when the mortgage was created: [2026] EWCA Civ 937 .

• High Court, Chancery Division — HHJ Hodge KC dismissed the Council's claim for an injunction enforcing the affordable-housing obligation and discharged the interim injunction: [2025] EWHC 1789 (Ch) .