The Technology and Construction Court (TCC) has recently considered whether a landlord's repairing obligation under a commercial lease required it to replace combustible Aluminium Composite Material (ACM) cladding. Although the dispute arose from post Grenfell building safety concerns, the judgment is primarily concerned with contractual interpretation. It provides useful guidance on the scope of repairing and compliance obligations where a building may be unsafe despite showing no physical deterioration.
Background
The claimant, Essendi UK Hotels 2 Ltd (“Essendi”), operated the 16 storey Ibis London Wembley Hotel under a long lease. The defendant, London Property Company Ltd (“LPC”), owned the freehold following a sale and leaseback transaction completed in 2007.
Before the sale and leaseback, Essendi had undertaken replacement cladding works using Reynobond ACM panels with a polyethylene core. Following the Grenfell Tower fire tragedy in 2017, it became apparent that the building was clad with highly combustible Category 3 ACM panels which presented a fire safety risk and required remediation works.
The lease required LPC, as landlord, to keep the exterior of the building in “good and substantial condition” and included a covenant to comply with relevant legal obligations. After identifying the fire safety risk, Essendi closed the hotel and sought to establish that (i) LPC was responsible for carrying out the remediation works and (ii) that LPC was liable to Essendi for damages arising from the closure.
The issue before the court
The principal issue was whether the landlord’s repairing covenant required LPC to replace ACM cladding that remained physically intact but rendered the building unsafe.
LPC argued that its obligations were limited to repairing deterioration. As the cladding had not deteriorated, replacing it amounted to an improvement rather than repair. Essendi argued that a building could not be described as being in “good and substantial condition” where it contained a serious fire safety defect, regardless of whether the cladding itself remained undamaged.
The court’s decision
The court preferred Essendi’s interpretation of the lease.
A key factor in the judge’s reasoning was the effect of the defect on the condition of the building as a whole. Although the ACM panels remained intact, they created an unacceptable fire risk. The court concluded that a building containing such a defect could not properly be regarded as being in “good and substantial condition”. On that basis, the landlord’s repairing obligation required the cladding to be replaced.
The court also attached weight to the landlord’s covenant to comply with legal obligations. It concluded that duties under the Regulatory Reform (Fire Safety) Order 2005 informed the scope of the landlord’s contractual obligations and reinforced the requirement to undertake the remediation works.
The judge also accepted that the ACM cladding could constitute a “dangerous substance” for the purposes of the Fire Safety Order under Article 12. While this was not the sole basis for the decision, it provided further support for the conclusion that the landlord could not avoid responsibility, simply because the defect arose from the original construction, rather than subsequent deterioration.
The court held that Essendi had acted reasonably in closing the hotel once the extent of the fire safety risk became known. Essendi's losses flowing from that closure were therefore recoverable from LPC.
Impact of the decision
Although the decision turned on the specific wording of the lease, the implications are likely to extend beyond the facts of the case:
- The decision reinforces that repairing obligations may extend beyond remedying physical deterioration. In appropriate circumstances, a court may conclude that a building with a serious fire safety defect is not in the condition required by the lease, even where there has been no physical deterioration.
- The decision serves as a reminder that contractual provisions remain central to determining responsibility for remediation works in commercial buildings. As the dispute concerned a hotel, the statutory protections introduced by the Building Safety Act 2022 did not determine the outcome. Instead, the court closely examined the parties’ contractual obligations, emphasising the importance of the drafting and allocation of risk within commercial leases.
- For commercial landlords, tenants and property owners, the decision highlights the importance of reviewing repairing, compliance and risk allocation provisions when assessing responsibility for building safety defects. While each case will depend on its facts and the wording of the lease, the judgment offers useful guidance on how the courts may approach similar disputes concerning contractual interpretation.
