Mortgagee exclusion clauses are commonly included in section 106 agreements which secure affordable housing obligations. Lawyers drafting planning agreements need to find the balance between protecting affordable housing and ensuring robust protection for lenders. This balance was at the heart of the recent Westminster City Council v Gems House Residences Chiltern Street Limited & Anor [2025] EWHC 1789 decision, where the High Court was asked to interpret the scope of a mortgagee exclusion clause within a Section 106 agreement.
Background
The dispute centred on the Council’s effort to enforce a section 106 agreement requiring 16 flats be retained as affordable housing. Under the agreement, in 2016, 16 flats were designated for affordable housing and leased to Kinsman Housing Ltd, which was, at the time, a registered provider. In 2023, Kinsman was de-registered by the Regulator for Social Housing due to governance and financial issues. In 2024, following default the mortgagee sold the flats to the defendant, a private developer, for £12.6 million.
The crux of the dispute was the interpretation of a clause exempting “any mortgagee of a Registered Social Provider or any person deriving title through such mortgagee” from the affordable housing obligations. The Council argued that the clause ceased to apply once Kinsman was de-registered. The defendant contended that the clause remained effective because the mortgage was granted while Kinsman was still registered.
High Court judgment
The High Court sided with the defendant, ruling that the exclusion clause applied from the date the mortgage was granted and that the exclusion continued to apply even though Kinsman was later de-registered. The judge acknowledged the loss of affordable housing with regret but underscored that the primary aim of the mortgagee exclusion clause was to facilitate commercial lending by shielding lenders from planning obligations in cases of default.
In his concluding statement, HHJ Hodge highlighted the following paragraph taken from the defendant’s skeleton argument: “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.”
The Birketts view
This ruling highlights the critical importance of precise language in planning obligations. Ambiguities in drafting can lead to unintended consequences, such as the loss of much needed affordable housing. For planning lawyers, this case is a clear reminder that the strength of a planning obligation depends on precise legal drafting and striking the balance between encouraging investment and preserving affordable housing stock.
Birketts offers expert assistance with drafting and reviewing mortgagee protection clauses, advising on their enforceability, and comprehensive support across the wider social housing and planning landscape.
If you have any questions about the contents of this article or require further guidance or support on planning law, please contact Sophie Lakes or another member of Birketts’ Planning and Environmental Team.
Key Contacts
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at August 2025.