In brief
- In Essendi UK Hotels 2 Ltd v London Property Company Ltd [2026] EWHC 1354 (TCC), a covenant to keep cladding in good repair and condition extended beyond mere disrepair, making the landlord liable to remediate an inherent design defect (ACM cladding of the type used at Grenfell Tower) before any fire occurred. Further, the landlord was the “responsible person” under the Fire Safety Order 2005 and the tenant could enforce the duties it imported.
- Specific performance was ordered requiring removal of the ACM within six months and design and installation of replacement cladding within a further 12 months.
- The decision is under appeal and a quantum trial is expected in late 2027. If Essendi seeks to recover expectation losses flowing from the hotel closure, including loss of revenue from major events at Wembley Stadium, these could be substantial.
- Before refusing to carry out work or suspending operations, advisers to commercial landlords and tenants should review complex covenants in the context of the particular deal, the nature of the building and the regulatory environment.
The facts
Essendi UK Hotels 2 Ltd ("Essendi") operates the Ibis Wembley, a 16-storey, 210-key hotel near Wembley Stadium, under a sale and leaseback. London Property Company Ltd ("LPC"), a Criterion Capital company, is its landlord.
Before the original 2007 lease, Essendi installed a rainscreen cladding system comprising Reynobond polyethylene core aluminium composite material ("ACM"). LPC’s post-Grenfell fire audit revealed the ACM was highly combustible, similar to what had been installed at Grenfell.
Under the lease, LPC covenanted:
- To put and keep the cladding in good repair and condition;
- To comply with legal obligations imposed on it by statute; and
- Not to derogate from its grant of the lease to Essendi by implication.
The Fire Safety Order 2005 (“FSO”) applies to commercial premises, not the Building Safety Act 2022. The FSO identifies “responsible persons” liable to keep commercial premises safe, independent of contractual arrangements.
Initial expert reports recommended that LPC notify the London Fire Brigade and engage a fire engineer. LPC’s position hardened around a 2018 report which found (in error, and ‘mysteriously’) that the cladding was solid aluminium, not high risk.
No consultation, tender or works having commenced, Essendi issued proceedings and closed the hotel until LPC completed the works necessary to render it safe.
The drivers for LPC's position were that Essendi had installed the cladding and LPC could not recover replacement costs under the lease.
The decision
HHJ Stephen Davies, sitting in the Technology and Construction Court ("TCC"), found LPC liable and ordered specific performance requiring removal of the ACM within six months, and replacement with suitable alternative cladding within a further 12 months. A quantum trial will follow.
The judgment will interest those advising commercial landlords and tenants:
- Good repair and condition covenant: LPC argued there was no deterioration or disrepair, the cladding had been defective from installation and LPC was unaware, so its repair covenant was not engaged even if that resulted in a 'liability lacuna'. The TCC focused on the 'condition' limb of the covenant and found LPC's liability extended beyond disrepair, making it liable to remediate the inherent defect notwithstanding no fire had occurred. The TCC was influenced by the Grenfell Inquiry and the deal context: a sale and leaseback on a turnover rent, with a keep-open covenant and only hotel use permitted, meant it could not have been intended that neither party was liable to deal with the "intolerable risk" of fire presented by the cladding.
- Legal obligations covenant: LPC argued that the FSO conferred a right of action on the Fire and Rescue Authority, not Essendi, and that the liability was uncertain. The TCC found LPC was the responsible person under the FSO and that, while the FSO did not confer a private right of action, it did not forbid one either. LPC’s legal obligations were defined specifically enough to tether its liability to a statutory regime requiring it to replace a dangerous substance and take preventative and protective measures.
- Derogation from grant: this failed. Only the parties' knowledge of the ACM had changed, not the factual position, and LPC had carved out any warranty as to fitness for hotel use.
Comment
LPC has permission to appeal on several grounds, so this could change.
The quantum trial is expected in late 2027. If Essendi seeks to recover its expectation losses, assisted by the TCC's finding that it was reasonable to close the hotel, these could be substantial and involve examination of factual and expert evidence as to the hotel's occupancy, operating costs, average room rates and the peak compression rates it expected to achieve during major concerts and matches at Wembley Stadium.
Although the TCC stressed there is no general presumption that good condition or legal obligations covenants operate as in this case, such terms will be familiar to commercial landlords and tenants. Advisers should consider the commercial context, the nature of the building and the regulatory environment before assuming such covenants apply or committing to litigation strategies.
Criticism for failure to remediate cut both ways among these well-funded parties. They could have agreed a licence and budget for the works without admission of liability, deciding at a later date who should pay. The cost of inaction and protracted litigation could dwarf the cost of remediation itself.