When 'Good Condition' Means Cladding Replacement: Essendi v LPC And Landlord Liability Under Commercial Leases

A recent High Court judgment provides important and novel guidance on the scope of landlords' covenants in commercial leases, particularly in the context of fire safety defects arising from combustible cladding.

In Essendi UK Hotels 2 Limited v London Property Company Limited [2026], the Technology and Construction Court (TCC) held that a landlord’s covenant to "put and keep" the building in “good and substantial repair and condition” extended to an obligation to remove and replace highly combustible aluminium composite material (ACM) cladding panels, even in the absence of physical disrepair.

This case is significant because:

1. The Court held that a landlord's “good condition” covenant in a commercial lease can require wholesale cladding replacement on fire safety grounds; and
2. it is thought to be the first time the courts have considered whether obligations under the Regulatory Reform (Fire Safety) Order 2005 (the “FSO”) can be enforced contractually through a covenant to comply with legal obligations; and
3. the tenant carried out the construction of the hotel prior to effecting a sale and leaseback to the landlord.

While the fact matrix in this case was unusual, it will be of interest to landlords and leaseholders of commercial buildings outside the scope of the Building Safety Act 2022 (BSA), including hotels, with fire safety or cladding defects. Given the potential impact of this decision, readers should watch out for any sign of an appeal to the Court of Appeal.

Background: building safety, hotels and the limits of the Building Safety Act

As explained in our recent video unpacking what hotel owners need to know about building safety, hotels are excluded from the definitions of "higher-risk buildings" and "relevant buildings" under the BSA. Thus – as the judge observed in this case – it was not open to Essendi (the tenant) to seek a remediation order under the BSA, as it could have done had the building in question been a residential tower block above the height threshold.

Summary of the dispute

• The case concerns a 16-storey (42.5 metre high), 210-bedroom hotel building in Wembley (the Ibis London Wembley), constructed in the early 2000s and subsequently re-clad in 2005-2006 by the tenant, Essendi (who was, at the time, the full owner of the whole hotel building).
• The cladding comprised Reynobond ACM panels with a polyethylene (PE) core, the same type of highly combustible cladding that was a principal cause of the Grenfell Tower fire. These are classified as Category 3 ACM (highly combustible).
• The claimant tenant, Essendi, operated the hotel under a 12-year lease from the defendant landlord, LPC. The current lease was entered into in March 2019, after the Grenfell Tower fire.
• Despite being a lease of the whole building, under the lease the landlord retained responsibility for the structure and exterior of the building, including cladding, and covenanted to "put and keep" these in “good and substantial repair and condition.” Unusually, there was no service charge provision entitling the landlord to recover the cost of such works from the tenant.
• Both parties’ fire safety experts agreed that the Category 3 ACM cladding panels represented an “intolerable risk” of fire and required removal and replacement. Despite this, LPC refused to accept liability for the remedial works, leading Essendi to issue proceedings.
• Essendi advanced novel arguments to obtain what equated to a building safety remediation order against LPC (despite not being afforded the same protections as residential leaseholders under the BSA). It advanced three grounds of claim:
  1. breach of the landlord’s "good condition" covenant;
  2. breach of the landlord’s “legal obligations” covenant, in conjunction with its obligations under the FSO (as to which see below),and;
  3. derogation from grant (which was rejected).
• Essendi sought an order for specific performance requiring LPC to remove and replace the cladding.
• In July 2025, Essendi closed the hotel on the advice of its fire safety expert, who advised that it could not safely remain open. Essendi also sought to recover its closure losses.

The Court's Decision

The "good condition" covenant

Previous case law has established that an obligation to repair can only apply where there is a disrepair (e.g. a deterioration from some previous physical condition). The Court held that although the cladding was not in physical disrepair, the “condition” limb of the landlord’s covenant was broader than the “repair” limb.

Applying the principle in Credit Suisse v Beegas Nominees Ltd [1994], the judge held that the covenant required the landlord to put and keep the building in a condition "which, given the property's age, character and locality and, in particular, as a tower block exceeding 18 metres in height intended and required to be used as a hotel, would make it reasonably fit for such use as regards fire safety risks".

The Court rejected arguments based on cost (£5–7 million), the (subjectively) short length of the lease term (12 years), the absence of physical manifestation of the defect, and the contention that replacement would give the tenant something “completely different” from what was demised.

The legal obligations covenant and the FSO

The FSO applies to all workplaces and the common parts of buildings containing 2 or more domestic premises. It imposes legal duties on the "responsible person" who has "control" of such premises.

The Court held that LPC was in breach of the legal obligations provisions in the lease, read with the FSO. LPC was found to be a “responsible person” under the FSO in relation to the structure and exterior (including the cladding), and its duties under articles 8, 10 and 12 of the FSO required replacement of the Category 3 ACM panels. The Court rejected LPC’s argument that the FSO’s enforcement regime prevented contractual enforcement, holding that sufficiently clear lease provisions can make statutory duties actionable between the parties.

Specific performance: order to replace cladding

The Court ordered LPC to: (a) remove the Category 3 ACM cladding panels within 6 months; and (b) complete re-cladding within an overall period of 18 months, all at LPC’s own cost.

Court upholds hotel closure decision

The Court held that Essendi’s decision to close the hotel was caused by LPC’s breaches, was reasonable in all the circumstances, and entitled Essendi to proceed to an assessment of damages.

What this means for commercial leases

• “Good condition” covenants can require cladding replacement: A landlord’s covenant to put and keep a building in “good condition” may extend to removing and replacing cladding which presents a fire safety risk, even without physical disrepair. This is a strict liability obligation, with landlord knowledge of the defect being irrelevant. Landlords and tenants of buildings (particularly, given the post-Grenfell context, of taller buildings in which people live and sleep) with fire safety defects should review their lease obligations accordingly, but note that the exact wording of the lease is key to understanding the extent to which the obligations stretch.
• An alternative route outside the Building Safety Act 2022: Hotels and other buildings outside the scope of the BSA regime may be able to compel landlords to carry out cladding remediation through standard legal obligations in lease covenants via the Regulatory Reform (Fire Safety) Order 2005, where the landlord is the responsible person. The Court confirmed that sufficiently clear legal obligations provisions can make FSO duties contractually enforceable between the parties.
• Cost proportionality alone is not a defence: The Court rejected arguments that the estimated cost of replacement (£5–7 million) or the absence of a service charge mechanism made replacement disproportionate. The fact that the tenant was not liable to pay the cost of the cladding replacement under the terms of the lease distinguishes this case from most landlord and tenant relationships, and was almost certainly a factor in the tenant pursuing the landlord in the way that it did.
• Post-Grenfell context is key: The judgment is expressly rooted in the post-Grenfell context and the passing of the Building Safety Act 2022. Whether this reasoning extends to other types of safety defects is a question of fact and degree and will be determined on a case-by-case basis, with particular attention placed on the wording of the lease provisions.

Finally, those procuring new-build hotels, hotels formed by material change of use, or recladding works to hotels which are over 18 metres in height should keep in mind the ban on combustible materials introduced by the Building (Amendment) Regulations 2018 – which was extended in 2022 to cover hotels, hostels and boarding houses. As a result of the extension, materials in the external wall of buildings falling into those categories must meet the same performance requirements as the higher risk buildings previously covered by the ban i.e. A2-s1, d0 or better. 

Read the original article on GowlingWLG.com