Landlord required to replace hotel cladding under lease covenants

In Essendi UK Hotels 2 Ltd v London Property Company Ltd [2026] EWHC 1354 (TCC), the High Court held that a landlord's covenant to keep a hotel building in good and substantial condition required the removal and replacement of combustible cladding. It also held that the landlord had breached its 'legal obligations' covenant by failing to comply with the Regulatory Reform (Fire Safety) Order 2005 (SI 2005/1541) (RRO 2005).

The Building Safety Act 2022 (BSA) has rightly shone on a spotlight on the use of combustible cladding in residential settings. However, Essendi UK Hotels 2 Ltd is noteworthy in that the landlord of a commercial property was held to be liable for the replacement of unsafe cladding, albeit via different legal route.

Background

The case concerned a 16-storey hotel in Wembley, London. In 2005, the then freehold owner, Essendi UK Hotels 2 Ltd (E), reclad the building with aluminium composite material (ACM) panels containing a highly combustible polyethylene core. In 2007, E sold the freehold and took a 12-year leaseback. Under the sale and leaseback arrangements, E was responsible for certain cladding defects until May 2017, after which responsibility for repairs passed to the new landlord, London Property Company Ltd (LPC).

The lease required LPC to put and keep the building's structure, exterior and cladding in good and substantial repair and condition (the good condition covenant) and to undertake works required by any relevant legal obligation (the legal obligations covenant).

Following the Grenfell Tower tragedy, concerns arose in relation to the quality of the hotel's cladding. LPC's investigations initially did not identify any issues. However, E's invasive investigations in late 2024 established that the panels were Category 3 ACM. Both parties' fire safety experts agreed that the cladding presented an intolerable fire risk and required replacement. LPC refused to undertake the works, so E brought proceedings. In July 2025, E closed the hotel following fire safety advice. The Court found that the closure was reasonably caused by LPC's breaches and ordered LPC to remove and replace the cladding.

Decision

The BSA does not apply to hotels. Its higher-risk building and remediation regimes principally concern specified residential buildings. The Court therefore considered the parties' other contractual and statutory obligations.

There was a general presumption that a good condition covenant does not require the remediation of a defect that has caused no physical damage. However, the Court held that the presumption could be displaced in certain circumstances.

The factors relevant to the Court's decision in Essendi UK Hotels 2 Ltd included:

• the wording and context of the lease;
• the fact that the property was used for sleeping accommodation;
• the height and nature of the building;
• the post-Grenfell significance of Category 3 ACM;
• the seriousness of the fire safety risk; and
• the absence of a service charge mechanism allowing the landlord to recover the remediation costs from the tenant.

The Court held that, in this context, the covenant required LPC to remedy the defect, as it was creating a significant fire safety risk, and remediation was necessary to make the building reasonably safe for occupation.

The decision was fact sensitive. It does not establish that every inherent or safety-related defect will fall within the scope a good condition covenant. The outcome in another case will depend on the precise wording of the lease and characteristics/use of the relevant building.

Separately, the Court held that ACM cladding was a dangerous substance under the RRO 2005, and that LPC was the responsible person in relation to the relevant structure and exterior. Therefore, under the legal obligations covenant, LPC's statutory duties under the RRO 2005 were contractually enforceable by E.

Practical implications

The decision is significant for landlords and tenants dealing with serious fire safety defects, particularly in other buildings outside the BSA's remediation regime, particularly those which include sleeping accommodation. Parties should consider carefully:

• the scope of repairing and condition covenants;
• obligations to comply with fire safety legislation;
• where responsibility lies for inherent or pre-existing defects; and
• how the costs of major remediation works are to be allocated.

The decision will also be relevant to dilapidations claims. It does not necessarily establish that tenants will automatically be liable for extensive cladding or fire safety works at lease expiry. However, in certain circumstances they may be, if the lease includes a requirement to leave properties in "good condition" as well as good repair.

Essendi UK Hotels 2 Ltd is also a timely reminder of the importance of clear drafting and careful consideration of building safety risks when negotiating commercial leases.