The direct and immediate consequence of <strong><em>Westminster City Council v Gem House Residences</em></strong> was, of course, the loss of the 16 flats as affordable housing units, as the Court itself acknowledged. However, mortgagee exclusion wording of this nature is common in section 106 agreements all over the country. It therefore seems likely that a number of local planning authorities, not just the Council, will now be considering the risk highlighted by the case and, in turn, reviewing the mortgagee exclusion wording in their standard form section 106 agreements.

In this regard, as much as the judgment shines light on a potential problem from a local planning authority perspective, it also highlights the solution – namely explicit drafting to cover off the possibility of a registered social provider being deregistered. However, one might question whether such drafting would be palatable to lenders if it impacted their ability to enforce their security free of the section 106 obligations.

Given that the purpose of these types of mortgagee exclusion clauses is to help facilitate the funding of affordable housing units, there is a delicate balancing act to be maintained here, which councils will need to carefully consider.

The potential legacy of <strong><em>Westminster City Council v Gem House Residences</em></strong> in section 106 drafting terms will no doubt play out in future section 106 negotiations. In the meantime, the case serves as both a reminder that section 106 agreements are subject to the usual rules of contractual interpretation and a stark illustration of the real-life consequences that legal drafting can have.

<strong><em>If you require any advice or assistance on section 106 matters, please do not hesitate to contact our specialist</em></strong> <strong><em>Planning Infrastructure &amp; Public Law team.</em></strong>