What we can learn from the Essendi v London Property Company case

For several years, cladding risk has been viewed largely as a building safety problem. Owners have focused on regulation, remediation programmes and the practical challenge of getting works delivered.

The High Court’s decision in Essendi UK Hotels 2 Ltd v London Property Company Ltd shows why this view is too narrow. Dangerous cladding is not just a technical defect. In the wrong circumstances, asset owners can face lease liabilities, trading risks and major costs.

The case concerned the Ibis London Wembley hotel, a multi-storey tower block fitted with Category 3 ACM cladding. The panels were not damaged in the traditional sense. They had not deteriorated with age and had not fallen into physical disrepair. The problem was that both parties’ fire safety experts agreed they presented an intolerable fire risk and needed to be removed.

A standard repair covenant usually requires physical deterioration before liability arises. If something is unsafe because of its original design or specification, not because it is damaged, the position is often more complicated.

The wording of the lease was critical in this case. The landlord had agreed to keep the relevant parts of the building in “good condition”. The court accepted that this wording does not automatically require a landlord to correct every inherent defect in the building. However, when considering the post-Grenfell context, the building’s height and use and the obvious fire safety risk, the courts decided this obligation went further. It concluded that the building could not sensibly be regarded as being in good condition while the ACM cladding remained in place.

This is the point asset owners need to focus on. The judgment does not make every landlord responsible for every defect. But it shows that the word “condition” can carry real weight where serious fire safety risks affect the building.

The court ordered the landlord to remove the panels within six months and replace them with suitable alternative cladding within 18 months. Ibis will also be paid damages, including losses connected with the closure of the hotel. This should catch the attention of asset owners. The risk is not just limited to the cost of the works. Delay can create wider exposure, including compensation claims that may be difficult to quantify at the start of a remediation programme.

The case is also significant because it involved a hotel, rather than a residential higher-risk building. Much of the post-Grenfell debate has understandably focused on residential blocks and the Building Safety Act. This case shows that other asset classes cannot assume they sit outside the problem. Owners of hotels, student accommodation, serviced apartments, healthcare premises and other buildings where people sleep must learn from this case and review their own portfolios.

The wider lesson is that legal, technical and project advice needs to be aligned much earlier. A fire safety report may identify the risk, a lease review may identify the obligation, and a remediation plan may set out the solution, but none of these will prepare an owner for a case like this alone. Treating them as separate workstreams will only increase the chance of dispute later down the line.

Asset managers should now be reviewing cladding risk as part of their wider lease and asset management strategy. That means understanding what the lease requires, what the fire safety evidence says, the cost of possible work and what happens if action is delayed.

The Essendi case is unlikely to be the final word on contractual liability for unsafe cladding. However, it is a clear warning that, in the post-Grenfell market, the word “condition” should not be overlooked. When a building is unsafe, lease obligations may create a wider challenge than many asset owners expect.