The Greater London Authority has issued a new version of the model mortgagee protection clause, which has been revised following discussions with housing associations and sector specialists.
20 February 2019
The Property Finance Working Group produced a standard mortgagee protection clause in 2016. The clause was designed to achieve Market Value – Subject to Tenancy (MVT) funding value against borrowings (subject to usual property due diligence).
In 2018, it came to the attention of the Group that the Greater London Authority (GLA) had a bespoke ‘template clause’ which was being used by some London local authorities. The Group recognised that if this clause was incorporated into a Section 106 agreement or other legal document, it would be ineffective for housing associations in securing an MVT funding valuation.
With the support of the G15 group of housing associations, the Group discussed this with the GLA due to the detrimental impact on values it would have, as only an Existing Use Value – Social Housing (EUV-SH) funding value could be supported where it was used.
The Group has now negotiated a revised GLA template mortgagee protection clause, which will facilitate an MVT funding value and enable housing associations to build more new homes through making best use of their assets.
The GLA has issued a practice note, which sets out the circumstances under which it will use this clause. The GLA will:
- use its revised template clause within Section 106 agreements for development proposals where the Mayor of London becomes the Local Planning Authority following ‘call-in’ of the application
- promote the revised clause's use for other schemes that are referable to the Mayor under the Mayor of London Order 2008, and non-referable applications, subject to the criteria referred to in the practice note
- apply its revised template clause where a housing association seeks a variation to an existing agreement that the Mayor is party to.
What does this mean for the standard clause?
The standard clause is still the recommended clause to use, and remains widely used in the sector, supporting the need for consistency.
The Federation and the Property Finance Working Group recommend its use as a minimum standard to be adopted in any Section 106 agreement or other legal document. It has already been accepted by key stakeholders in the sector and should not be changed.
The use of the GLA’s revised template clause is limited to GLA development sites, but in the knowledge that it still supports an increase in the level of finance that can be secured against Section 106 properties. This in turn expands the amount of affordable homes delivered in London.
Notes: The Property Finance Working Group comprises sector experienced lawyers and valuers: Addleshaw Goddard, Allen & Overy, Clarke Willmott, Clifford Chance, Devonshires, JLL, Savills, Trowers & Hamlins, Winckworth Sherwood & Wright Hassall, and is chaired by the Treasury Solicitor at L&Q. It was formerly referred to as the Securitisation Working Group.