Water penetrating hotel beyond acceptability — challenging situation (3,4)
I believe the answer is:
hot seat
'challenging situation' is the definition.
(term for a challenging or high-pressure situation)
'water penetrating hotel beyond acceptability' is the wordplay.
'water' becomes 'sea' (the sea is water).
'penetrating' indicates putting letters inside.
'hotel' becomes 'h' (phonetic alphabet: alpha, bravo, charlie etc.).
'beyond acceptability' becomes 'OTT' (over the top).
'h'+'ott'='hott'
'sea' put into 'hott' is 'HOT SEAT'.
(Other definitions for hot seat that I've seen before include "Eat host In position of person with difficult responsibilities." , "new constituency" , "Difficult situation" , "Position of full responsibility (colloq.)" , "Position at top" .)