The development on the former site of Middlesex Hospital. Photograph: Linus Rees

A row over affordable homes could see a hospital charity take “unprecedented” legal action against Camden Council.

The conflict centres on a 2004 agreement that could see land potentially worth “£100 million” transferred to the council for just £1.

The Town Hall has cited the arrangement in its planning documents, but UCLH Charity says its own legal advice is that the agreement has now lapsed.

The charity wanted to reduce the number of affordable homes by more than half on the former site of the Middlesex Hospital in Fitzrovia.

It said the scheme was no longer viable and wanted cut the number from 40  to 17.

It was initially given planning permission in 2019 to build 53 homes – including 36 at affordable rent, four at intermediate rent, and 13 to sell at market rate.

The scheme would have seen part of South House and buildings near the 19th-century Workhouse Building demolished to make way for a block with the new homes and commercial  space for healthcare.

However, it asked to change the initial approval to 57 homes in all, but with 40 for market sale, 13 at affordable rent, and four still at intermediate rent.

It said the challenges and costs of the development meant it was no longer viable to provide as many affordable homes.

The council “strongly opposed” this.

According to council papers, the site is linked to a section 106 planning gain agreement, which said 30 affordable homes had to be built on the site by 2010 or the council could  “serve notice on the NHS Trust requiring them to transfer the land to the council for £1”. This would allow the council to develop the site for affordable housing.

The charity’s development director Peter Burroughs said it “has obtained legal advice that the 2004 agreement has lapsed”.

The council disputes that the agreement no longer stands.

Burroughs said there was a “limit to the loss” the charity could sustain and it could not run to 40 affordable homes.

He pointed out that the charity and council both agreed the previous scheme is now unviable.

He said the charity could deliver 30 affordable homes, if the alternative would be a refusal, a year-long wait for an appeal and possibly court proceedings over the “£1 clause”.

Bloomsbury ward councillor Adam Harrison (Lab) made a deputation against the scheme.

He said Fitzrovia residents have been waiting for developers to deliver the homes: “We are all really fed up of the dither and delay.”

Planning committee member Danny Beales (Lab, Cantelowes) said: “Promises matter and trust matters in the planning system.”

He said it would “deeply damage” trust if the changes were agreed.

“I do understand they have agonised over this decision somewhat,” he said, but added that the charity was “deprioritising affordable housing on this site”.

He went on: “I understand they believe they have to prioritise their charitable impacts. Good housing is crucial to good health and a health-based charity in this borough should be minded that affordable housing is a significant determinant of good health for our residents.”

Oliver Cooper (Con, Hampstead Town) said the committee was not allowed to consider any possible legal action as part of its deliberations as it is not a material consideration.

He questioned why the application had not sought to overturn the agreement before coming to the committee, “given the permission is worth over £100 million”.

The committee’s legal advisor Aidan Brooke said the UCLH Charity is a valued  stakeholder and it would be “very sad” if it took legal action against the council.

He said it would “be unprecedented for a charity to take that incredibly bullish position” to challenge the section 106 agreement.

The planning committee rejected the application to vary the number of affordable homes.

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