The question at the heart of the case was whether Gem was entitled to claim the benefit of a mortgagee exclusion clause in the section 106, as a person deriving title from the mortgagee of a registered social provider. The key provision was clause 10.1 of section 106, which provided that the planning obligations in section 106 were not enforceable against various persons, including at 10.1.1 “any mortgagee of a Registered Social Provider or any receiver appointed by such mortgagee or any person deriving title through any such mortgagee or receiver.</em>”

The Council submitted that for a person to fall into 10.1.1 they must derive title from a person who is a mortgagee of a registered social provider at the time of the disposal. The Council argued that this was the natural meaning of the wording and that this aligns with the wider planning and regulatory context, including the overall aim of the affordable housing obligations to secure the affordable housing in perpetuity.

Gem submitted that they fell within the scope of 10.1.1 on the natural and ordinary meaning of the words, being a person deriving title through a mortgagee of a registered social provider. The relationship of mortgagor and mortgagee was created at the grant of the mortgage and it was not relevant that Kinsman was subsequently deregistered; the Council’s interpretation involved reading into 10.1.1 wording which was simply not there.

In its judgment in late July, the High Court favoured Gem’s interpretation over the Council’s and discharged the interim injunction accordingly.  Whilst the Court expressed regret at the consequent loss of affordable housing, it explained that Gem’s construction was consistent with the rationale and purpose of the mortgagee exclusion clause - namely to encourage sufficient commercial lending for a registered provider by permitting the lender to sell the affordable housing at open market value in order to realise its security in the event of default. In this context, the Court considered that the Council’s interpretation was “counter-intuitive, because it puts any mortgagee at the mercy of the actions of third parties over which it has absolutely no control: the conduct of the registered social provider, and the response of the regulator.</em>”