The properties along Paddington Street and Chiltern Street can now be rented a market rate [Google/LDRS]

THE city council has lost a High Court bid to halt 16 affordable flats being refurbished and rented for thousands of pounds more.

David, Judge Hodge KC ruled in favour of Gems House Residences, which bought the Chiltern Street, Marylebone, flats for £12.6million in February 2024, according to Estates Gazette.

Westminster City Council had sought an order to keep the flats as affordable housing 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. The agreement contained a “mortgage exclusion clause”, 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 deregistered as a provider with the Regulator of Social Housing in September 2023 due to concerns about finances. Mortgage lender PGP Securities transferred the properties to Gems House Residences. Westminster had 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 the judge 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 £4million and let them at market rates. This is expected potentially to generate £1.5million annually compared with the current rate of £158,592 from affordable housing rents.

The council said it plans to appeal the decision and Cllr Liza Begum, cabinet member for housing services, told the Local Democracy Reporting Service: “We are disappointed by the judgment 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.”