Westminster Council has lost its High Court bid to halt 16 affordable homes in Marylebone being refurbished and rented for thousands of pounds more on the private market.
Judge Hodge KC ruled in favour of Gems House Residences, which bought the Chiltern Street flats for £12.6mn in February 2024, according to Estates Gazette.
“Not without some regret at the consequent loss of much-needed affordable housing, I have no hesitation in preferring the defendants’ submissions to those advanced on behalf of the claimant,” ruled Hodge.
The council had sought an order to keep the flats as affordable housing (10 social-rented and six intermediate-affordable) and argued a special get-out clause in the original planning permission did not extend to Gems House Residences.
The dispute centred on the interpretation of a Section 106 agreement signed in 2013 as part of the permission for the development at 22-28 Paddington Street and 74-76 Chiltern Street, to create 60 flats as well as shops, restaurants and off-street parking.
The agreement contained a “mortgage exclusion clause” which is designed to encourage commercial lending for affordable homes but also allow lenders to sell them if borrowers defaulted on their loan.
The properties were originally purchased by social housing providers London District Housing Association and later by Kinsman Housing.
Kinsman was forced to give up the flats when they de-registered as a provider with the Regulator of Social Housing in September 2023 due to concerns about the company’s finances. Mortgage lender PGP Securities transferred the properties to Gems House Residences.
Westminster argued the mortgage exclusion clause did not apply to Gems House Residences because Kinsman was no longer a social housing provider at the time of the transfer.
But Judge Hodge disagreed, ruling the relevant date was when the mortgage was granted, at which point Kinsman was a registered provider.
According to Estates Gazette, the ruling means Gems House Residences can now refurbish the 16 flats at an estimated cost of £4mn and let them at market rates.
This is expected to potentially generate £1.5mn annually compared to the current rate of £158,592 from affordable housing rents.
Westminster Council said it plans to appeal the decision.
Cllr Liza Begum, cabinet member for housing services, told the Local Democracy Reporting Service: “We are disappointed by the judgement in this case. While it relates to the wording used in a small number of historic section 106 agreements, we are seeking permission from the Court of Appeal to appeal. We believe the judge’s interpretation was wrong and we are writing to ministers to make that point.
“It is important to stress that the majority of our affordable housing section 106 agreements are unaffected because of different wording used.”
Westminster City Council v Gems House Residences Chiltern Street Limited & Anor [2025] EWHC 1789.
Additional reporting by Linus Rees.
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