In Essendi UK Hotels 2 Limited v London Property Company Limited, the Technology and Construction Court (TCC) has ordered a commercial landlord to remove and replace highly combustible ACM cladding at its own cost despite there being no physical disrepair to the building on which the cladding was installed.  

The decision significantly extends the reach of leasehold repairing covenants and has important implications for commercial buildings with fire safety defects, particularly those outside the scope of the Building Safety Act 2022 (“BSA”).

This article unpacks the key findings and their practical consequences for landlords and tenants alike.

Background: The Building Safety Gap for Commercial Properties

The BSA confers on leaseholders of qualifying residential buildings the right to apply for remediation orders compelling landlords to address critical fire safety defects. Hotels, hostels, and other commercial buildings are expressly excluded from its scope.

As the judge observed, this left Essendi without recourse to a BSA remediation order, despite the defect being precisely the kind the legislation was designed to address. The result of this is a remediation gap for commercial occupiers: exposed to the same combustible cladding risks as residential leaseholders, but without equivalent statutory protection.

This case illustrates how that gap may, in appropriate circumstances, be bridged through contractual mechanisms already contained in leases.

The Facts at a Glance

The dispute concerned the Ibis London Wembley, a 16-storey, 210-bedroom hotel in Wembley.

Between 2005 and 2006, whilst Essendi was the freehold owner of the building, it re-clad the hotel using Reynobond aluminium composite material (ACM) panels with a polyethylene (PE) core — the same Category 3 (highly combustible) cladding subsequently identified as a principal cause of the Grenfell Tower fire.

Essendi had originally developed and owned the hotel before selling the freehold and leasing the building back for a 12-year term from the defendant landlord, LPC. 

That lease was entered into in March 2019, after the Grenfell Tower fire and, with it, widespread public awareness of the dangers posed by Category 3 ACM cladding.

Although the lease demised the whole building to Essendi, the landlord retained responsibility for the structure and exterior, including the cladding, and covenanted to "put and keep" those elements in "good and substantial repair and condition". Notably, the lease contained no service charge mechanism by which LPC could recover the cost of structural works from the tenant.

The fire safety experts instructed by both parties agreed that the Category 3 ACM panels posed an "intolerable risk" of fire and required removal and replacement. Notwithstanding the experts’ agreement, LPC refused to accept liability for remediation, prompting Essendi to commence proceedings. In July 2025, acting on the advice of its fire safety expert, Essendi closed the hotel.

The Court’s Decision: Three Key Items

1.  The “Good Condition” Covenant Extends to Fire Safety

Established case law has long held that a covenant to “repair” a building only bites where there is physical disrepair and so a deterioration from some prior condition. The ACM cladding was not in a state of physical deterioration; it was simply dangerous.

The Court held that the “condition” limb of the landlord’s covenant was broader than the “repair” limb and that the covenant required the landlord to put and keep the building in a condition which, given the property’s age, character, locality and critically its use as a tower block exceeding 18 metres in height operating as a hotel, would make it reasonably fit for that use as regards fire safety risks.

The Court rejected each of the landlord's defences in turn. LPC's contention that the estimated replacement cost of £5–7 million was disproportionate was dismissed on the basis that cost alone cannot excuse a party from a clear contractual obligation. Equally, the relatively short unexpired term of the lease was held not to be determinative of the landlord's liability. The Court also rejected the argument that the absence of any physical manifestation of the defect precluded a claim, confirming that the covenant to maintain "condition" extends beyond visible disrepair. Finally, LPC's submission that replacing the cladding would provide the tenant with something materially different from what had been demised found no favour with the Court, which held that the essential character of the building would remain unchanged.

The Court confirmed that the landlord’s knowledge (or lack of) in relation to the defect is irrelevant to the existence of the obligation.

2.  The Regulatory Reform (Fire Safety) Order 2005 Can Be Enforced Contractually

The lease also contained a covenant requiring the landlord to comply with its legal obligations. The Court held that LPC was a “responsible person” under the Regulatory Reform (Fire Safety) Order 2005 (FSO) in respect of the structure and exterior of the building, and that its obligations under Articles 8, 10 and 12 of the FSO required it to remove and replace the Category 3 ACM panels.

In a significant ruling, the Court held that sufficiently clear lease provisions can make statutory FSO duties actionable as between landlord and tenant. 

3.  Specific Performance: Cladding Removal Ordered

The Court exercised its discretion to grant specific performance, ordering LPC to remove the Category 3 ACM cladding panels within 6 months and to complete the re-cladding works within an overall period of 18 months, in each case at LPC's sole cost. The Court further held that Essendi's decision to close the hotel had been caused by LPC's breaches and was reasonable in all the circumstances, entitling Essendi to proceed to a separate assessment of damages for its losses due to the closure .

Landlord and Tenant Responsibility: Who Pays for What?

The judgment serves as a timely reminder that the obligations in relation to cladding remediation will turn on how a lease is drafted.

Four variables are likely to prove decisive in most cases: 

1. Which party holds the repairing covenant? Does the landlord or tenant covenant to repair/keep in condition the structure, exterior and cladding?
2. A bare “repair” covenant may not extend to a defect with no physical deterioration, whereas a “condition” obligation may.
3. Whether a compliance covenant brings statutory obligations? Is there a covenant to comply with statute or legal obligations? Does it cover the FSO? If the landlord is the “responsible person” under the FSO, a sufficiently clear compliance covenant may give the tenant a contractual remedy
4. Service Charge provisions – can the covenanting party recover costs from the other through a service charge or other mechanism? The absence of a service charge in this case was critical: it meant that LPC had to bear the full £5 –7m cost with no right of recovery

What this means in Practice

"Good condition" covenants carry real force. A "put and keep in good condition" covenant in respect of the structure and exterior does need careful consideration as to whether this means the party with the obligation faces exposure to cladding remediation obligations — and will do so without waiting for physical disrepair to materialise. As this case makes clear, that exposure arises from the nature of the covenant itself, not from any prior knowledge of the defect.

Commercial tenants may have a route to compel remediation outside the Building Safety Act. Hotels, offices, and other commercial occupiers confronting cladding or fire safety defects who cannot access remediation orders under the BSA may nonetheless be able to pursue their landlord through the terms of their lease. Where the lease contains both a condition covenant and a legal obligations covenant and the landlord is the responsible person under the Fire Safety Order, the contractual framework may provide a powerful and direct remedy.

Cost is not a shield. The Court's robust rejection of LPC's cost-based arguments makes clear that the financial burden of cladding remediation does not, of itself, constitute a defence to a clear covenant obligation. Landlords should not assume that the scale or cost of the required works will insulate them from an order for specific performance.

Service charge drafting is critical. In most commercial leases, the landlord's repairing obligations are accompanied by service charge provisions enabling recovery of costs from the tenant. Where such a mechanism exists, the ultimate financial burden may fall very differently from the position in this case. Landlords and tenants alike should review their leases carefully to understand where, in practice, the cost exposure lies.

Also post-Grenfell context matters. The judgment is explicitly framed against the backdrop of the Grenfell Tower fire and its aftermath. Whether this reasoning will extend to other categories of safety defect is likely to be a question of fact and degree, to be determined case by case.

New-Build and Recladding Works: Regulatory Requirements

Those delivering new-build hotels, hotels created by a material change of use, or re-cladding works to hotels above 18 metres should be aware of the ban on combustible external wall materials introduced by the Building (Amendment) Regulations 2018 and extended in 2022 to cover hotels, hostels and boarding houses. External wall materials on such buildings must now achieve a minimum reaction-to-fire classification of A2-s1, d0, the same standard required for higher-risk residential buildings. The practical consequence is that the Category 3 ACM cladding at the centre of the Essendi dispute could not lawfully be installed on any such building today.

Watch This Space

Given the significance of the decision, in particular the ruling on the contractual enforcement of Fire Safety Order duties, we will need to see whether LPC seeks permission to appeal to the Court of Appeal.

How We Can Help

Our Real Estate and Construction teams advise landlords, tenants, and lenders on the full range of fire safety and cladding-related issues in commercial and mixed-use buildings as well as remediation of defective buildings. If you would like to discuss the implications of this judgment for your portfolio please get in touch with us.