The recent case of Westminster City Council v Gems House Residences Chiltern Street Limited & Anor [2025] highlights the intentions behind Mortgagee Protection Clauses

Background

In April 2013, Westminster City Council (WCC) granted a planning permission for a mixed-use development, which included a requirement under a Section 106 Agreement for 16 dwellings to be delivered as affordable housing. These dwellings were owned by Kinsman Housing Limited (Kinsman), a registered provider and a registered social landlord (RP) at the time. However, Kinsman was de-registered by the Regulator of Social Housing in August 2023 and subsequently defaulted on its loan agreement. As a result of the default, the lender exercised its power of sale in 2024, relying on the mortgagee protection clause (MPC) contained in the Section 106 Agreement, and the leases were transferred to Gems House Residences Chiltern Street Limited (Gems).

Gems, the defendant in the case, acquired the dwellings from the lender with the intention of letting them on the open market. In response, WCC sought an injunction to enforce the affordable housing provisions of the Section 106 Agreement. Gems argued that these provisions were no longer binding as the MPC released successors in title from the affordable housing obligation once the lender had exercised its power of sale. WCC contended that because Kinsman had been de-registered as an RP before the sale, the MPC was not triggered and could not benefit Gems. Conversely, Gems maintained that the MPC became operative at the time the mortgage was granted, when Kinsman was still a registered provider, and continued to apply despite the subsequent de-registration.

The High Court agreed with Gems. Judge Hodge KC stated 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.” Accordingly, the Court held that the MPC applied and dismissed WCC’s claim.

What can we learn from this case?

This case sheds important light on the purpose and practical impact of MPCs, which are designed to shield lenders from restrictive obligations such as affordable housing requirements under Section 106 Agreements. MPCs play a critical role in enabling finance and this case underlines the need for carefully drafted and robust MPCs that effectively protect not just RPs and registered social landlords (RSL) but also their lenders and successors in title. 

Where an MPC lacks clarity or is not in the ‘golden standard’ form promoted by the National Housing Federation, funding may be restricted to existing use value for social housing (EUV-SH), rather than the more favourable market value subject to tenancies (MV-STT), which can have a significant impact on reducing the financial value of RP and RSL property portfolios. 

How can we help?

Our specialist Property Variations and Rectifications Team is experienced in resolving complex issues affecting property portfolios and unlocking maximum value from housing stock. We regularly act for RPs and RSLs to amend legal documentation - strengthening MPCs to enhance property values - and have built strong, collaborative relationships with local authorities across the country. For further information about the Team please visit: Property Variations and Rectifications