In the recent High Court decision of Westminster City Council v Gems House Residences Chiltern Street Ltd & Anor [2025] EWHC 1789 (Ch), the court provided important clarification on the interpretation and enforceability of mortgagee protection clauses within Section 106 agreements under the Town and Country Planning Act 1990.

Background

Planning permission was granted by Westminster City Council (the council) in 2013 for a mixed-use development including 60 residen flats, subject to a planning agreement (the s106 agreement). The s106 agreement required 16 of the flats to be used for affordable housing.

In 2023, the owner of the leases for these 16 flats - Kinsman Housing Limited (Kinsman), a registered provider of social housing (RP) at the time of purchase, was de-registered by the Regulator of Social Housing due to financial and governance failures. Following de-registration, Kinsman defaulted on its existing loan agreement, prompting the lender to exercise its power of sale.

In February 2024, the leasehold ownership of the 16 flats was transferred to the defendants: Gems House Residences Chiltern Street Ltd and Gems House Chiltern Street Head Lease Limited “the defendants), with the intention of letting the properties on the open market.

The council sought an injunction to enforce the affordable housing requirement within the s106 agreement. The defendants argued they were not bound by this requirement due to the mortgagee protection clause contained in the agreement.

Key legal issue

At the heart of the dispute was the reliance on the mortgagee protection clause (the MPC) - a provision designed to shield lenders from automatic liability for planning obligations (such as affordable housing requirements) if a borrower defaults on a loan. In a default scenario, a lender may enforce their security, in the form of a charge on the property, by selling the property. Whether the lender can sell free of obligations under a s106 agreement or similar instruments depends on how the MPC is drafted.

The council argued the MPC did not apply, because Kinsman was no longer a registered provider at the date of sale, with the MPC applying to a ‘mortgagee of any Registered Provider’. 

The defendants contended that the relevant date for the purpose of the MPC was the date the mortgage was granted, not the date of sale.

The court’s decision

The Chancery Division ruled in favour of the defendants, confirming that the MPC applies to a mortgagee of a registered provider from the time the mortgage is granted, and continues to apply even if the provider is subsequently de-registered.

A key quote from the judgment of HH Judge Hodge KC being: 

“If, as it contends, the Schedule One [affordable housing] obligations became binding on [the lender] at the moment of Kinsman's deregistration, its security became encumbered by those obligations and restrictions from that point in time. That would substantially undermine the purpose of the exclusion. The risk to their security that this would entail might well deter mortgagees from lending at all. It would certainly introduce a powerful incentive for any mortgagee to structure its security on terms that enabled it to enforce it at the earliest point in time, so as to maximise the chance of achieving an open-market sale before the mortgagor was deregistered.”

This judgment sets a helpful precedent for interpreting MPCs in cases involving the deregistration of social housing providers.

Why this matters

This judgment is significant for registered providers of social housing and their lenders because it:

• Confirms the enforceability of well-drafted MPCs.
• Provides reassurance to lenders, supporting the use of the higher valuation basis - Market Value Subject to Tenancy (MV-STT), rather than the lower Existing Use Value for Social Housing (EUV-SH).
• Highlights the importance of precise drafting, not only in planning agreements but also in title documents, which can also contain affordable housing restrictions requiring similar MPCs.

Next steps

To assess whether your documentation supports MV-STT valuations or to review your MPCs, please contact me.