Essendi UK Hotels 2 Limited v London Property Company Limited

A post-Grenfell commercial lease requiring a landlord to keep a tall hotel building in good condition may require the removal and replacement of inherently dangerous combustible cladding, even where the cladding is not in physical disrepair. The obligation depends on the language of the lease and its surrounding circumstances, including the building’s intended use and the parties’ knowledge of fire-safety risks.

A landlord may also owe an enforceable contractual obligation to carry out works required by the Regulatory Reform (Fire Safety) Order 2005. A tenant’s closure of the hotel may be recoverable where it was caused by the landlord’s breaches, was a foreseeable consequence, and was a reasonable response based on the information and competent expert advice available at the time.

Essendi, tenant and operator of an Ibis hotel, claimed that LPC, its landlord, was responsible for removing and replacing category 3 aluminium composite material cladding with a highly combustible polyethylene core. The claim relied on the landlord’s good-condition covenant, the legal-obligations covenant read with the Regulatory Reform (Fire Safety) Order 2005, and the implied covenant not to derogate from grant.

Essendi also claimed losses after closing the hotel on 29 July 2025 following expert fire-safety advice. LPC disputed liability, relying in part on bespoke cladding provisions in an earlier lease and contending that the closure was unreasonable or motivated by extraneous considerations. The court determined liability, causation and the appropriateness of specific performance.

1. Cladding and good condition covenant. The category 3 ACM cladding represented an intolerable fire risk and required removal and replacement. Although the authorities supported a general presumption that a good-condition covenant does not require works to remedy an intrinsic defect causing no physical damage or deterioration, that presumption was displaced by the lease’s wording and circumstances. The building was a 16-storey hotel, the current lease was entered into after Grenfell, and the parties knew the importance of fire safety and the intended hotel use. The covenant therefore required LPC to put and keep the building reasonably fit for hotel use as regards fire safety. The obligation was strict, so LPC’s lack of actual knowledge was irrelevant.
2. Original lease. The bespoke cladding provisions did not make Essendi responsible. The relevant defect had not appeared, and Essendi had not become aware of it, before the contractual cut-off date. The evidence did not establish that Essendi knew or ought to have known before that date that the panels were category 3 ACM or presented the relevant fire risk.
3. FSO and legal-obligations covenant. LPC was the responsible person, or alternatively a person with control of the relevant structure and exterior. The cladding was a dangerous substance for the purposes of the FSO. Articles 8 and 12 required reasonably practicable precautions and replacement of the dangerous substance where that was the means of eliminating or reducing the risk. Article 39 did not prevent Essendi enforcing a contractual promise to comply with those obligations. The lease provisions were sufficiently clear to make the statutory duties contractually actionable.
4. Closure and loss. The closure was factually caused by LPC’s breaches. It was a foreseeable serious possibility when the current lease was made. The court considered the information available in July 2025, including prior expert advice, LPC’s refusal to act and the absence of any realistic remediation timetable. Reliance on Mr Bullock’s advice was powerful evidence but not decisive; the court should not conduct a retrospective mini-trial merely by choosing between experts at trial. Essendi’s decision was reasonable, including in light of reputational and prosecution risks.
5. Other relief. The derogation-from-grant claim failed. Specific performance was appropriate. LPC was required to remove the category 3 ACM cladding within six months and replace it with suitable external cladding within an overall period of 18 months, with provision for further directions. LPC was also required to use reasonable endeavours to agree suitable flashing to protect the western elevation.