Landlord of UK commercial lease held to have fire safety obligations

A High Court ruling handed down on 5 June has found that a landlord's obligation to keep a hotel in good and substantial repair extends to the removal and replacement of dangerous cladding. The well-established general presumption that a "good condition" covenant will not include a duty to remedy an inherent defect, was displaced in light of the particular circumstances of the case. 

The decision in Essendi UK Hotels 2 Ltd v London Property Co Ltd [2026] represents a clear shift in lease interpretation in the post-Grenfell regulatory landscape. Commercial lease covenants have been capable of achieving building safety-style remediation in a context where the Building Safety Act 2022 (BSA) does not directly apply. 

Background 

The case concerns the Ibis London Wembley Hotel, a 16-storey block constructed with category 3 aluminium composite material (ACM) cladding with a highly combustible polyethylene core, the same type of cladding used at Grenfell Tower. 

In 2007, the claimant sold the freehold of the hotel and at the same time entered into a leaseback agreement, with bespoke lease provisions allocating responsibility for cladding defects to the tenant (the claimant). The cut-off date for that responsibility was 22 May 2017, just under one month before the Grenfell fire. After this date, responsibility would revert to the freeholder. The defendant acquired the freehold in 2018, with a further lease being granted to the claimant in 2019. Critically, the bespoke provisions regarding the tenant's cladding responsibility were not carried over to the 2019 lease. 

The cladding formed part of the landlord's retained premises and there were no relevant service charge provisions allowing the landlord to recoup cladding remediation costs from the tenant. The lease did, however, contain a standard "good condition" obligation on the landlord.

In 2024, investigations at the hotel confirmed that the hotel cladding was category 3 ACM and "highly combustible". However, the defendant landlord refused to accept liability and, on the advice of its own expert, the claimant closed the hotel in July 2025. As part of the claim, both parties' experts agreed that the cladding presented an "intolerable risk" of fire.

Breach of lease covenants

The claimant sought two key remedies: an order for specific performance, compelling the defendant to replace the cladding; and damages for losses flowing from the closure of the hotel.

The claimant sought to rely on the defendant's "good condition" and "legal obligations" covenants in the lease, with reference to statutory obligations under the Regulatory Reform (Fire Safety) Order 2005. The claimant also sought to argue that the defendant had breached its implied covenant not to derogate from its grant of the lease.

Claimant successful in judgment

The claimant was successful on two out of its three core arguments and failed only on the claim for derogation from grant.

On the "good condition" covenant, the court held that the defendant landlord was required to keep the building reasonably fit for use as a hotel in regard to fire safety, which included removing and replacing the cladding. The general presumption that a good condition covenant does not extend to remedying an intrinsic defect causing no physical damage or showing deterioration was displaced on the facts and in the context of the post-Grenfell climate.

The court also held that the defendant was a "responsible person" under the order and therefore bound by a positive contractual duty to carry out works relating to the cladding, despite the order itself not providing a civil right of action.

Specific performance and damages

The claimant was awarded specific performance and damages for losses arising from the hotel closure, with the quantum of loss reserved. 

The court did, however, emphasise that this case turned on its own facts and the nature of the property in question, with the decision not necessarily applying to other inherent building-safety related defects or other commercial property.

Osborne Clarke comment

This is a striking example of the courts' willingness to extend the post-Grenfell building safety agenda into the commercial landlord and tenant sphere. While commercial tenants are generally unable to access the remediation framework provided by the BSA, the case demonstrates a movement towards commercial lease covenants potentially being a tool to effectively fill that gap.

"Good condition" and "legal obligation" covenants now carry significantly greater risk for commercial landlords, alongside an increased emphasis on the importance of clear and robust service charge provisions. Had the lease allowed the landlord to recover costs from the tenant, the parties' respective positions would likely have been very different, possibly entirely reversed.

The judgment is also a stark reminder for developers, investors and operators of other multi-storey buildings used for sleeping or other similar accommodation. Mixed-use developments and serviced accommodation may fall within the BSA framework where specified criteria are met. Each situation warrants careful analysis to determine whether the development falls within scope. 

Jai Balaghan, a trainee solicitor with Osborne Clarke, contributed to this Insight