The company headed by Irish property developer Mr Garrett Kelleher has pulled out of its €365 million deal to buy the landmark Lloyds building in the City of London from its German owners after discovering a fault in the structure.

Mr Kelleher's vehicle, Shelbourne Developments, announ- ced last night that it had decided not to complete the deal after a survey discovered alkali silica reaction (ASR) in samples of concrete from the building.

ASR is known as "concrete cancer" and one of the symptoms is cracking on the surface of an affected building. Buro Happold, a firm of structural engineers retained by Shelbourne to survey the Lloyds building, observed cracking at several points.

Subsequent laboratory tests identified the presence of ASR. The building's designers, Ove Arup, assured Shelbourne in a report that once remedial work was carried out, ASR "would not be an issue" for the building.

In a statement last night, Shelbourne said that it was in no way refuting Ove Arup's opinion. However, it added that the company felt that as an investment "the building was less attractive to it and was not comfortable to proceed any further".

According to a source, the fact that the building was a landmark added a premium to its value. But he said that even comparatively small problems could erode that premium considerably.

Shelbourne had agreed to pay £240 million (€365 million) for the property, which was originally taken over by German company, Deka, after the Lloyds collapse eight years ago.