MORTGAGEE EXCLUSION IN SECTION 106 AFFORDABLE HOUSING OBLIGATIONS: REGISTERED PROVIDER STATUS TESTED AT MORTGAGE CREATION, NOT AT SALE

1. Introduction

This appeal concerned the construction of a mortgagee exclusion clause within a planning obligation under section 106 of the Town and Country Planning Act 1990 (“TCPA 1990”). The section 106 agreement, entered into on the same day as planning permission for a mixed-use development in Westminster, required 16 flats to be retained as “Affordable Housing” and transferred on long leases to a “Registered Social Provider” (“RSP”) for sub-market letting.

The local planning authority (the appellant, “the Council”) sought to enforce the affordable housing restriction by injunction against the current long-lease owner (the first respondent), which had acquired the leases by assignment from a mortgagee exercising its power of sale following regulatory action against the RSP. The Council’s case depended on a temporal limitation: that the mortgagee exclusion only applied if the mortgagor was still an RSP at the time the mortgagee sold to the purchaser. The respondents contended that the mortgagor’s RSP status was tested at the time the mortgage was created (or novated), and that the purchaser from the mortgagee was therefore within the exclusion as a “person deriving title through” a mortgagee.

The Court of Appeal (Holgate LJ giving the lead judgment, with Miles LJ and the Chancellor concurring) dismissed the Council’s appeal, endorsing the High Court’s construction.

Key issue

Whether, for clause 10.1.1 of the section 106 agreement, the requirement that the lender be a “mortgagee of a Registered Social Provider” must be satisfied:

• at the date the mortgage relationship was created; or
• at the later date when the mortgagee disposes to a third party under a power of sale (or similar enforcement).

2. Summary of the Judgment

The Court of Appeal held that clause 10.1.1 is not “ambulatory”. The mortgagor’s status as a “Registered Social Provider” is tested at the time the mortgage relationship was created (including by novation), not at the time of the mortgagee’s sale. Accordingly, a purchaser taking an assignment from a mortgagee enforcing its security can rely on clause 10.1.1 as a “person deriving title through” a “mortgagee of a Registered Social Provider”, even if the provider has since been de-registered under the Housing and Regeneration Act 2008 (“HRA 2008”).

The consequence was determinative: the affordable housing obligation in Schedule 1 was not enforceable against the respondents, and the Council was not entitled to a permanent injunction.

3. Analysis

3.1 The operative clause and the “date question”

Clause 10.1.1 excluded enforcement of Schedule 1 obligations against: (i) any mortgagee of a Registered Social Provider; (ii) any receiver appointed by such mortgagee; and (iii) any person deriving title through any such mortgagee or receiver.

The Council argued that limb (iii) required the mortgagor to be an RSP at the time of the mortgagee’s disposition to the third party, so that the protection could fall away on deregistration. The Court rejected that reading as inconsistent with the clause’s language, structure, and consequences.

3.2 Precedents cited and their role

A. Interpretation of public planning documents

• Trump International Golf Club Scotland Limited v Scottish Ministers [2015] UKSC 74; [2016] 1 WLR 85: cited for the modern, objective approach to interpreting planning permissions and the emphasis on the “reasonable reader” reading the document as a whole, with limited scope for party-specific knowledge in public documents.
• Lambeth London Borough Council v Secretary of State for Housing, Communities and Local Government [2019] UKSC 33; [2019] 1 WLR 4317: reinforced that the interpretive approach for planning instruments is aligned with general principles.
• Norfolk Homes Limited v North Norfolk District Council [2020] EWHC 2265 (QB); [2021] PTSR 863: supported applying the Trump/Lambeth approach to section 106 agreements and unilateral obligations.

These authorities framed the methodology: although a section 106 agreement is a “public document”, it is construed objectively by its text, context, and purpose. In this appeal, that methodological point supported a text-led conclusion because the court considered the relevant language “crystal clear”.

B. General contractual interpretation

• Re Sigma Finance Corporation [2009] UKSC 2; [2010] 1 All ER 571
• Arnold v Britton [2015] UKSC 36; [2015] AC 1619
• Wood v Capita Insurance Services Limited [2017] UKSC 24; [2017] AC 1173
• Providence Building Services Limited v Hexagon Housing Association Limited [2026] UKSC 1; [2026] 1 WLR 538

The decision reflects a familiar synthesis from these cases: start with the ordinary meaning of the words, read in their documentary context; use commercial common sense as a cross-check, not as a license to re-write. The Court of Appeal applied those principles by treating the “such mortgagee” linkage between limbs as decisive, and then testing the rival constructions against consequences.

C. Commercial common sense and restraint

• BMA Special Opportunity Hub Fund Limited v African Minerals Finance Limited [2013] EWCA Civ 416: cited for the proposition that where there are two available constructions, the court may prefer the one consistent with business common sense, but must not elevate that to an overriding criterion.
• Napier Park European Credit Opportunities Fund Limited v Harbourmaster Pro-Rata Clo 2 B.V. [2014] EWCA Civ 984: cited for testing rival interpretations against the contract’s other provisions and consequences, while discerning commercial intention primarily from the instrument’s terms.

The court used commercial consequences in a limited, disciplined way: not to displace language, but to confirm that the Council’s “ambulatory” interpretation produced outcomes the parties were unlikely to have intended (including value “cliff-edge” risk and downstream title-transfer problems).

3.3 Legal reasoning: why clause 10.1.1 was not “ambulatory”

A. Text and structure: “such mortgagee” links all limbs back to limb (i)

The court’s central move was structural. Limb (ii) (receiver) and limb (iii) (successors in title) were connected to limb (i) by the phrase “such mortgagee”. On the natural reading, the “mortgagee” is the lender who became a mortgagee of an RSP when the mortgage relationship was created. Nothing in the clause required the mortgagor to remain an RSP at later enforcement/disposal stages.

The Council’s approach implicitly treated “such mortgagee” differently across limbs (and introduced an unstated time condition), which the court regarded as linguistically unjustified.

B. Internal coherence: limb (i) cannot sensibly be ambulatory

The court reasoned that limb (i) itself does not read as ambulatory: a lender who is a “mortgagee of an RSP” at the mortgage’s creation is within limb (i) from that point. If limb (i) continues to protect the mortgagee despite later deregistration, it would be incoherent for limbs (ii) and (iii) to lose protection based on later deregistration.

C. Clause 10.1.2 did not support a different approach

The Council relied on clause 10.1.2 (mortgagee protection where an RSP grants a lease/transfer to a tenant or other person) to argue that the drafting elsewhere was more explicitly time-tied. The court held the argument misconceived: clause 10.1.2 is also tripartite and uses the same “such mortgagee” structure; the additional words there merely identify the category of mortgagor (tenant/person) by reference to right to buy/acquire pathways.

D. The agreement’s own definition of “Registered Social Provider” undermined the Council’s temporal test

“Registered Social Provider” was defined to include not only a provider registered under Part 2 HRA 2008, but also an unregistered provider approved in writing in advance by the Council’s Director of Housing. For an approved-but-unregistered provider, there is no ongoing “registration status” capable of changing in the way the Council’s argument required. The court treated this as a powerful contextual indicator that clause 10.1.1 was designed to look to the provider’s qualification at the outset (when the mortgage is created), not to impose a continuing status condition at later sales.

E. Consequences: the Council’s reading created a downstream title trap

A key practical consequence drove the court’s rejection of the Council’s construction: even if a mortgagee sold while the provider remained registered, the purchaser and future successors would face ongoing risk that subsequent deregistration would prevent them from relying on clause 10.1.1 at their own later dispositions. That would chill marketability and create a mismatch between open-market purchase price and later affordable-housing resale value—an outcome the court considered unreasonable and inconsistent with the clause’s evident purpose of facilitating finance and realisation of security.

F. Foreclosure illustrated the inconsistency in the Council’s approach

The court noted that a mortgagee could in principle avoid reliance on limb (iii) by foreclosing and relying on limb (i), showing there was no logical basis for making limb (iii) depend on the provider remaining registered when limb (i) would not.

3.4 Statutory context and why the moratorium point carried limited weight

The Council argued that the respondents’ construction would allow a mortgagee to sidestep the HRA 2008 moratorium by waiting until deregistration before enforcing. The court gave that point “limited weight” for several reasons rooted in the 2013 statutory landscape:

• The moratorium regime did not apply at all to an unregistered (but Council-approved) provider—yet clause 10.1.1 plainly catered for that possibility.
• As at 2013, the moratorium was limited in duration and effect (not a robust mechanism for preserving affordable housing against secured creditors in all cases).
• Negotiating reality: the section 106 agreement sought to secure on-site affordable housing, but also had to accommodate the practical need for private secured lending. Over-weighting the moratorium risk could undermine the ability to secure funding and thus jeopardise delivery of affordable units at all.

3.5 Impact: what this decision changes (and what it signals)

A. For local planning authorities

• Drafting precision is critical: if an authority intends mortgagee protection to depend on continuing registration status at the date of enforcement/sale, the clause must say so expressly. The Court of Appeal treated the existing wording as incapable of bearing that meaning.
• Enforcement strategy: where the mortgagee exclusion is in standard “mortgagee/receiver/deriving title through” terms, an authority may find it difficult to restrain onward disposal following enforcement, even if the provider is deregistered.
• Risk allocation: the decision underscores that section 106 affordable housing provisions often embed an explicit policy choice to prioritise fundability of RSP acquisitions, accepting that in default scenarios the housing may be lost to the general market.

B. For funders, receivers, and purchasers

• Title certainty: purchasers from a qualifying mortgagee (and those down the chain) have stronger confidence that a typical “deriving title through” carve-out is not defeated by subsequent deregistration of the original RSP.
• Transaction structuring: lenders and buyers can treat the relevant “qualification” moment as the mortgage’s creation (or novation), reducing the need to price continuing regulatory status risk into enforcement sales.

C. For affordable housing policy and future litigation

• The judgment may prompt renewed scrutiny of mortgagee exclusion drafting across existing section 106 portfolios, particularly where authorities assumed (without explicit words) an “ambulatory” limitation.
• Future disputes are likely to turn on: (i) the exact wording of the carve-out; (ii) definitions of “Registered Social Provider”; and (iii) whether the instrument expressly ties protection to status “at the time of disposal/enforcement”.

4. Complex Concepts Simplified

Section 106 agreement (TCPA 1990)

A legally binding planning obligation, typically used to make a development acceptable (for example, by securing affordable housing). It binds the original developer and, subject to its terms, successors in title, and is enforceable by injunction (TCPA 1990, s.106(5)).

Registered Social Provider (in this agreement)

A term defined by the agreement to include (i) a provider registered under Part 2 HRA 2008, and (ii) an unregistered provider approved in advance by the Council. That broader definition mattered: it made it less plausible that clause 10.1.1 was intended to depend on continuing registration status.

Mortgagee exclusion clause

A clause designed to ensure lenders are not stuck with planning obligations (such as affordable housing restrictions) when enforcing security. Without it, lenders may be unwilling to fund acquisitions of affordable housing interests, jeopardising delivery.

“Deriving title through” a mortgagee

A broad conveyancing concept capturing purchasers and later transferees who take title by a chain traced through the mortgagee’s enforcement disposal (and, depending on drafting, through receivers or others). Here, it encompassed the purchaser from the mortgagee under a power of sale.

“Ambulatory” interpretation

An interpretation where a condition must be satisfied from time to time (e.g., the borrower must still be registered at the time of sale). The court held clause 10.1.1 did not operate in that shifting, time-sensitive way.

HRA 2008 moratorium

A statutory pause on certain disposals/enforcement steps where security is enforced against land held by a registered provider, giving the Regulator time to consider proposals to protect social housing assets. The court treated its existence (as at 2013) as a limited aid to construing the private wording chosen in the section 106 agreement.

5. Conclusion

Westminster City Council v Gems House Residences Chiltern Street Ltd & Anor establishes a clear interpretive outcome for a common form of section 106 mortgagee carve-out: where clause wording exempts “any mortgagee of a Registered Social Provider … and any person deriving title through” that mortgagee, the provider’s qualifying status is tested at the creation of the mortgage relationship, not at the later point of enforcement sale. The clause is not “ambulatory” absent explicit language.

The decision materially strengthens certainty for lenders and enforcement purchasers, while signalling to planning authorities that if they intend affordable housing obligations to “snap back” on deregistration, they must draft for that outcome expressly and confront its financing consequences directly at the section 106 negotiation stage.