Factual and Procedural Background
On 11 April 2013 Company A, as local planning authority, granted planning permission for a mixed-use development in The City that included 60 flats. A s.106 agreement executed the same day required 16 flats (Units 1-16, Property A) to be kept as affordable housing and to be granted on long leases to a Registered Social Provider ("RSP"). The agreement anticipated that an RSP would take long leases and might need to obtain secured lending; clause 10.1.1 excluded from the agreement's obligations "any mortgagee of a Registered Social Provider ... or any person deriving title through any such mortgagee or receiver."
By transactional steps in 2014-2016 an RSP (Company F) acquired the 16 leases and granted a legal charge in favour of Company H (lender), with the charge novated in 2016 to Company H as mortgagee of Company G (the subsequently registered RSP). Regulatory action by the regulator led to de-registration of Company G on 7 September 2023 (a default under the charge). On 16 February 2024 Company H exercised its power of sale and assigned the long leases to Company B (the first respondent), subject to existing occupational tenancies.
Company A sought an injunction to enforce the affordable housing obligations against Company B and Company C; HHJ Hodge (sitting in the High Court) held that clause 10.1.1 should be construed so that a mortgagee (and persons deriving title through that mortgagee) qualify for the exclusion if the mortgagee was "of" an RSP when the mortgage was created, and dismissed Company A's claim. Company A appealed with permission; the Court of Appeal (Judge Holgate delivering the leading judgment, with Judge Miles and Judge Birss agreeing) considered whether the relevant qualification date is the date of the mortgage or the later date when the mortgagee transfers the interest.
Legal Issues Presented
- Whether a transferee of leases from a mortgagee may rely on the s.106 agreement's mortgagee exclusion (clause 10.1.1) as "a person deriving title through any mortgagee of a Registered Social Provider."
- If so, at what date must the mortgagee have qualified as "a mortgagee of a Registered Social Provider" for the exclusion to apply: (a) the date the RSP granted the mortgage, or (b) the later date when the mortgagee transferred the mortgagor's interest to the transferee?
Arguments of the Parties
Appellant's Arguments (Company A)
- Clause 10.1.1 should be read so that the mortgagee exclusion is "ambulatory": the mortgagor must be a person listed in the register of providers of social housing at the date of the disposition from the mortgagee to the transferee (i.e. at the date of sale by the mortgagee).
- On the true construction, the qualification criteria (including that the mortgagor be a registered provider) must be satisfied at the date of transfer from the mortgagee; otherwise the exclusion would allow mortgagees and purchasers to defeat the affordable housing obligation after deregistration.
- Criticised the judge's assessment that no lender would lend on Company A's construction as not based on evidence (ground 3), arguing the judge erred in law in his construction.
Respondents' Arguments (Company B and Company C)
- The natural meaning and structure of clause 10.1.1 is that the mortgagee exclusion applies where the mortgagee was "of" an RSP at the date the mortgage was created; limbs (1)-(3) of clause 10.1.1 are linked and not ambulatory.
- Limbs (2) and (3) refer back to the mortgagee identified in limb (1); there is no language requiring the mortgagor to remain registered at later dates when a receiver or purchaser disposes of the interest.
- Commercial consequences and the background statutory regime (HRA 2008 moratorium provisions as at 2013) support the construction that qualification occurs at the date of the mortgage, to encourage secured lending to RSPs and avoid irrational diminution of a lender's security by later deregistration.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Trump International Golf Club Scotland Limited v Scottish Ministers [2015] UKSC 74; [2016] 1 WLR 85 |
Modern interpretive approach for public planning documents; reading provisions in context and what reasonable reader would understand. |
Applied as part of the interpretive framework for construing a s.106 agreement, treating planning obligations like other legal documents for purposive/contextual interpretation. |
| Lambeth London Borough Council v Secretary of State for Housing, Communities and Local Government [2019] UKSC 33; [2019] 1 WLR 4317 |
Interpretive principles for planning instruments and obligations. |
Used alongside Trump to justify applying ordinary contextual interpretation to the s.106 agreement. |
| Norfolk Homes Limited v North Norfolk District Council [2020] EWHC 2265 (QB); [2021] PTSR 863 |
Support for applying planning- document interpretive principles to s.106 obligations/unilateral obligations. |
Relied on for the proposition that s.106 agreements are public and open to similar interpretive rules as planning permissions. |
| Re Sigma Finance Corporation [2009] UKSC 2; [2010] 1 All ER 571 |
General principles on interpretation of agreements. |
Referred to as part of familiar authorities on contractual interpretation to be applied to the s.106 agreement. |
| Arnold v Britton [2015] UKSC 36; [2015] AC 1619 |
Principles on contractual interpretation and the limits of commercial common sense. |
Cited as part of the established canon of interpretive authorities to guide construction of clause 10.1.1. |
| Wood v Capita Insurance Services Limited [2017] UKSC 24; [2017] AC 1173 |
Warning against over-reliance on commercial common sense; interpretive approach to commercial documents. |
Applied to caution against elevating commercial common sense above textual meaning, while recognising commercial consequences are relevant. |
| Providence Building Services Limited v Hexagon Housing Association Limited [2026] UKSC 1; [2026] 1 WLR 538 |
Recent authority on interpretation principles (cited contemporaneously). |
Included among the judicial authorities framing the general approach to construction adopted by the court. |
| BMA Special Opportunity Hub Fund Limited v African Minerals Finance Limited [2013] EWCA Civ 416 |
Permits choosing between rival constructions where one aligns better with business common sense, subject to limits. |
Quoted for the principle that commercial (business) common sense may be preferred where ascertainable but should not be overriding. |
| Napier Park European Credit Opportunities Fund Limited v Harbourmaster Pro-Rata Clo 2 B.V. [2014] EWCA Civ 984 |
Discern commercial intention and commercial consequences from contract terms. |
Used to support testing rival constructions against contractual provisions and commercial consequences. |
Court's Reasoning and Analysis
The court applied established interpretive principles for public planning instruments and general contract interpretation: read the language from the perspective of a reasonable reader in context; consider natural and ordinary meaning, overall purpose, other provisions, and commercial common sense (Trump, Lambeth, Wood and other authorities cited).
The court analysed clause 10.1.1, identifying three linked limbs: (1) "any mortgagee of a Registered Social Provider"; (2) any receiver appointed by such mortgagee; and (3) any person deriving title through any such mortgagee or receiver. The central dispute concerned limb (3) and whether the qualifying characteristic of the mortgagor as an RSP had to subsist at the date of the mortgage or at the later date when the mortgagee disposed of the mortgaged interest.
The court concluded that limb (1) is plainly not ambulatory: a mortgagee "of" an RSP is identified by the mortgage relationship created on the mortgage date. Limbs (2) and (3) are linked to limb (1) by the phrase "such mortgagee" and therefore should be read consistent with limb (1). There is no textual indication that limbs (2) or (3) impose a fresh temporal test requiring the mortgagor to remain registered at the later date of sale or receiver disposition. Reading limbs differently would produce commercially unattractive and incoherent results (for example, leaving a transferee unable to rely on the exclusion because of later deregistration, and imposing unpredictable diminution of lender security), and would be inconsistent with the parties' evident purpose of encouraging secured lending to RSPs.
The court gave limited weight to the submission that the statutory moratorium under the HRA 2008 militated against the respondents' construction: the moratorium (as at 2013) was of limited duration and effect; the agreement expressly contemplated unregistered providers approved by the authority; and broader commercial consequences (risk of discouraging lending and frustrating provision of affordable housing at the outset) favoured the judge's construction. The judge's observation about commercial risk was an assessment of commercial consequences rather than extraneous factual finding and did not amount to reversible error.
Holding and Implications
APPEAL DISMISSED
Holding: The Court of Appeal upheld the High Court's construction. Under limb (3) of clause 10.1.1 a person deriving title from a mortgagee is excluded from the s.106 obligations if, when the mortgage was created, the mortgagor was a "Registered Social Provider" within the meaning of the agreement. It is not necessary that the provider remain registered under Part 2 of the HRA 2008 at the time of the transfer from the mortgagee.
Implications: The immediate effect is that Company B and Company C are not bound by the affordable housing obligations under the s.106 agreement in respect of the 16 units, and Company A's injunction claim fails on that basis. The judgment interprets the agreement according to its terms and the contextual statutory regime; it does not purport to create a novel general principle of law beyond construing the clause as applied to the facts. No wider precedent altering the statutory moratorium regime was established.