Remediation orders by the back door: The hidden risks in your commercial lease

The decision of the High Court in Essendi UK Hotels 2 Ltd v London Property Company Ltd [2026] EWHC 1354 (TCC) is significant and potentially has far-reaching implications for the remediation of unsafe cladding and other fire safety defects in buildings that fall outside of the Building Safety Act regime.

The case is novel. As the judge observed, the tenant’s reliance on lease covenants in its claim against the landlord was, in substance, an attempt to obtain a building safety remediation order requiring the landlord to replace unsafe cladding in circumstances where the Building Safety Act 2022 did not apply because the building was a hotel. The attempt was successful.

We understand that permission to appeal has been granted. Therefore, the true extent to which this case will shape the law on landlord and tenant covenants in the context of inherent defects and fire safety risks will not be known until we have the appeal decision. However, for the time being, there are two key takeaways.

First, a lease covenant to put and keep premises in “good condition” or to carry out works to comply with a “legal obligation”, enforceable at the suit of one party to the lease against the other, may require the covenantee to remove and replace unsafe cladding or to address some other inherent defect that creates a significant fire safety risk.

Second, allied to the above, under the Regulatory Reform (Fire Safety) Order 2005 (FSO), category 3 ACM cladding is a “dangerous substance”, and the owner of a building containing such cladding may be responsible under the FSO to remove and replace it in order to discharge its duties under the FSO and ensure that the premises are safe.

Background

There is a complicated history to the dispute. The bones of the relevant facts are as follows:

1. In 2001, Essendi was the freeholder which procured the construction of the multi-storey tower block that later became the Ibis London Wembley hotel.
2. In 2005, Essendi procured the replacement of the exterior cladding because a number of the original cladding panels had failed and detached from the building.
3. In 2007, Essendi entered into a sale-and-leaseback agreement with Wembley Hotels Limited and continued to operate the hotel. It took a lease for a term of 12 years with a right to renew the lease for three further periods of 12 years on the same terms. In 2019, the current freeholder, London Property Company (LPC), and Essendi entered into the first such renewal lease.
4. The lease contained specific covenants in relation to the cladding. In the event of disrepair to the cladding occurring and evident on inspection prior to the “cut-off date”, the tenant was to be responsible for its repair and the remediation of any defect. The cut-off date was 22 May 2017, which coincided with the expiry of the limitation period for any claims that Essendi could have brought against the contractor who did the cladding installation works in 2005. Thereafter, any risk in relation to the condition of the cladding transferred to the landlord, and the landlord’s lease covenants were to repair and keep in good condition, inter alia, the structure and exterior of the building including the cladding, and to do so at its own cost – there was no service charge payable by the tenant.
5. The Grenfell Fire tragedy occurred less than one month after the “cut-off” date in the lease. The landlord’s predecessor commissioned a review of the cladding at the hotel in November/December 2017, which identified a concern that the cladding was category 3 ACM, yet this was not shared with Essendi. Instead, for reasons that were not clear (“something of a mystery” in the judge’s words), a reassuring but erroneous report concluding that the cladding was not ACM, but solid aluminium, was shared with Essendi. Further, there were subsequent missed opportunities on LPC’s part to further investigate concerns raised by other professionals.
6. In 2024/2025, it was common ground between the parties that the cladding comprised a category 3 ACM core similar to that present in Grenfell Tower.
7. In May 2025, the London Fire Brigade issued LPC with a "Notification of Fire Safety Deficiencies” on the basis that the cladding needed to be remediated and, accordingly, LPC was in breach of Article 11 of the FSO, but it had not taken further enforcement action, nor had it issued a prohibition notice requiring the building to be decanted.
8. In July 2025, Essendi closed the hotel because of the fire safety risk.
9. In the proceedings, the parties’ experts agreed that the cladding represented an “intolerable” risk bearing in mind the nature of the building and its use as a hotel, and would need to be replaced, though LPC’s expert contended that in the short-term other mitigation measures would suffice.

The landlord’s “good condition” covenant

The lease contained a not uncommon covenant which required LPC to “put and keep the building…including the structure roofs facade foundations lift shafts windows window frames external building envelope waterproofing and…the cladding of the building…at all times in good and substantial repair and condition.”

A “repair” covenant does not bite unless there is in fact disrepair. This decision does not alter that principle. Accordingly, as there was no evidence that the cladding was in a state of disrepair, Essendi could not rely on the first limb of the covenant.

Further, as acknowledged by the judge, the weight of authority points towards a general presumption that a duty to keep in “good condition” would not, without more, include a duty to undertake works to put demised premises into a safe condition where that lack of safety results from an intrinsic defect which has not led to any actual damage or disrepair or other physical consequences.

However, the judge determined that this general presumption could be displaced where justified by the relevant prevailing circumstances in which the current lease was entered into, so that there is no invariable rule of interpretation to that effect. That was the case here in light of the particular facts known to each party at the date of the lease in 2019 – including, inter alia, the occurrence of the Grenfell Tower fire and the subsequent investigations as to whether the cladding at the hotel was solid aluminium or category 3 ACM  – and the terms of the lease; thus, LPC was in breach of its “good condition” covenant. It is interesting to note that the judge did not consider the relevance (if indeed there is any) that the relevant terms of the lease (including the covenants as to “good condition”) were in fact set in 2007 by the terms of the original lease, and that LPC presumably did not have the ability to contend for different terms once Essendi had exercised its option to renew.

Going one step further from the facts of this case, at [337] the judge proffered a new, general legal principle, which has implications beyond the Building Safety Act for leases of hotels and other places where people live and sleep that are not caught by the Act.

“In my view in the post-Grenfell period it ought to be the case that, where there is a multi-storey building providing accommodation in which people live and sleep (including, for present purposes, a hotel) an obligation entered into – at least post-Grenfell – to put and keep the premises in good condition would include an obligation to remove and replace cladding or to address some other inherent defect which: (a) creates a significant fire safety risk; and (b) requires remediation, both to make the building reasonably safe for occupation and to comply with the obligations imposed on the responsible person under the FSO…unless the relevant admissible facts point to a separate conclusion.”

The landlord’s “legal obligations” covenant

In addition to the “good condition” covenant, Essendi relied on a covenant requiring the landlord to carry out works to the building where “legal obligations” require it to carry out such works.

The “legal obligations” on which Essendi relied were those under the FSO (see below); in short, the duty to remove and replace the cladding as it contended LPC was responsible to do under the FSO. HHJ Stephen Davies held that LPC was in breach of this covenant for not having carried out those works.

The significant determinations in this respect are twofold.

First, the judge determined that the principle in Pullman Foods v The Welsh Ministers [2010] EWHC 2521 (TCC) that a contractual obligation to “comply with all laws” does not, without more, turn statutory duties into duties actionable as between the contracting parties, did not apply here. The judge accepted the general principle but held that the lease's provisions were sufficiently clear and explicit to satisfy that higher threshold

Second, the judge rejected LPC’s submission that the FSO's enforcement scheme (fire and rescue authority notices, criminal offences, and a right of appeal to the magistrates' court) impliedly excludes a private contractual claim of this kind, distinguishing the House of Lords' decision in Marcic v Thames Water Utilities Ltd [2004] 2 AC 42 on the basis that the FSO's scheme is not comparably comprehensive or exclusive as the one which was the subject of the House of Lords decision (ie, Water Industry Act 1991), and that nothing in the FSO or the authorities prevents parties from contractually agreeing that one of them will comply with obligations imposed by such an instrument.

Duties in respect of cladding under the Regulatory Reform (Fire Safety) Order 2005

It was of course fundamental to the finding as to whether LPC was in breach of the “legal obligations” covenant that it be established that LPC was in fact under a duty to replace the cladding under the FSO.

The judge’s findings in this regard are significant and may have wider implications for commercial parties operating outside of the Building Safety Act sectors:

1. Although Essendi was the employer by virtue of operating a hotel business and the responsible person for the workplace part of the building, ultimately LPC was the “responsible person” under the FSO in relation to the structure and exterior of the hotel (including the cladding) or alternatively as the person in control of the structure and exterior of the hotel in view of its obligations under the lease in relation to the maintenance, repair and safety of the premises.
2. LPC owed duties as the responsible person or person in control under the FSO to “relevant persons”, which included Essendi’s employees, hotel guests, other visitors and anyone living, working at or visiting adjacent properties who could be at risk from a fire on the external parts.
3. The category 3 ACM cladding is, or contains, a “dangerous substance” on account of the flammable polyethylene core, which plainly satisfied the “physico-chemical properties” limb of the definition in the FSO. The judge rejected LPC’s submission that “dangerous substance” should be read narrowly (limited to flammable liquids/gases or intrinsically hazardous substances), holding Article 2(b) is deliberately drafted in wide terms.
4. Article 12(1) requires risk from a dangerous substance to be eliminated or reduced so far as reasonably practicable, and Article 12(2) requires the responsible person to replace the dangerous substance (or its use) with something that eliminates or reduces the risk. The judge held LPC had provided no credible evidence that replacement was not reasonably practicable. The judge also rejected LPC’s argument that only the polyethylene core (not the whole panel) was the “dangerous substance”, holding that if it is not reasonably practicable to replace the core without replacing the whole panel, replacing the whole panel falls within the duty at Article 12(2).
5. Even absent Article 12, Article 8 (general fire precautions) independently required removal. The judge held that “what is reasonably required in the circumstances of the case to ensure that the premises are safe” was, on the evidence, removal of the category 3 ACM cladding – and that this conclusion does not depend on whether LPC's position under the lease as landlord makes this outcome commercially disadvantageous to it, since “the FSO is concerned with the safety of relevant persons rather than the adjudication of disputes as between landlords and tenants.”
6. The FSO's proportionality/cost-benefit framework (Article 8) did not save LPC. Although LPC argued removal was not “reasonably practicable”/proportionate given the high cost, and relied on the cost-benefit guidance in “PAS 9980” (the code of practice that sets out a method for competent professionals to conduct Fire Risk Appraisals of External Wall construction), the judge found that, in the context of cladding removal, cost was not a materially relevant factor given the severity and nature of the fire safety risk, and that no alternative package of piecemeal mitigation measures was shown to reduce the risk to an acceptable or tolerable level.

The remedies awarded

In light of LPC’s breaches, the court made an order for specific performance requiring LPC to (a) remove the category 3 ACM cladding panels within six months, and (b) replace them with suitable alternative external cladding within an overall period of 18 months.

The trial was one in respect of liability only, and so damages are to be assessed at a further trial. However, the judge determined that the closure of the hotel was caused by LPC’s breaches and that the decision to close the hotel was a reasonable one, contrary to LPC’s assertions as to that point. Therefore, alongside remediation costs, it is likely that any consequent damages award that LPC will need to pay will be significant in order to compensate Essendi for the losses that follow from its closure of the hotel.

Concluding remarks

The decision does not create any general or automatic rule that every “good condition” covenant or compliance with “legal obligations” covenant will require remediation of inherent fire safety defects. The judge’s proffered general rule as to a “good condition” covenant post-Grenfell at [337] (see above) is obiter dictum: it is not a binding general rule. Whether a lease clause requires remediation of inherent defects will depend on the specific lease in question, the use of the building, what was known to the parties at the time of the lease and what works may reasonably be required in the circumstances.

Nevertheless, if and to the extent the decision stands, it may have wide-ranging implications for the interpretation of commercial leases and for the remediation of fire safety defects in buildings that fall outside of the Building Safety Act, such as hotels, care homes, and student accommodation that do not meet the relevant building requirements set out at section 117 of the Building Safety Act, or indeed any residential building below 11 metres or five storeys in height.

It looks likely that the Court of Appeal’s decision will be one of the most important decisions in recent history in the context of landlord and tenant covenants and how they apply to inherent defects and fire safety.

For more information, please get in touch with a member of our building safety team or listen to our Building safety conversations podcast.

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