Asbestos in commercial buildings: A Québec BAPE report provides an opportunity to revisit the landlord-tenant liability rules

Dentons

An extremely comprehensive report, released on August 7, 2020, by Québec’s environmental review board, the Bureau d’audiences publiques sur l’environnement (the BAPE) on the status of asbestos and its regulation in Québec, calls for important changes to the regulation of this material and re-opens a highly-sensitive debate within the Province.

The 300-page report paints a vivid picture of the rich history of the once-vibrant asbestos industry in Québec and of the previously thriving mining towns, primarily Thetford Mines and Asbestos, which supported that industry. Québec was once the dominant world player in the production of chrysotile asbestos, exporting annually hundreds of thousands of tons of the “white gold” to some 75 countries. It was an important part of the Québec economy. The last mine ceased operations in 2012 and these regions have since moved on, diversifying their economies with federal and provincial help. The Town of Asbestos is even considering changing its name.

However, the BAPE also points out the “light touch,” and even outright support and encouragement, which the industry historically received from prior Québec regulators. As an example, the Québec health and safety threshold for workers exposed to asbestos fibres (generally 1 fibre per cm3) is 10 times less stringent than the federal threshold (0.1 f /cm3) and is 100 times less strict than some other jurisdictions in Europe.

The experts cited by the BAPE provide a sobering overview of the terrible impacts of this substance on human health, notably through the “ticking time bomb” diseases of mesothelioma and other lung cancers. These diseases are known to lead to a certain death among sufferers, but only materialize some 20 to 40 years after the affected individuals inhaled the asbestos fibres into their lungs.

The grim science is now well known and acknowledged, internationally and in the eyes of the BAPE. However, asbestos was widely used in Québec and throughout the world, whether as a reinforcing additive in asphalt, or as an insulator or fire retardant in building materials.

Bottom line, from a commercial real estate perspective: the vast majority of commercial office buildings built before the mid 1980’s contain asbestos, whether as insulation around piping or in the walls or ceilings. In Québec as elsewhere, the asbestos issue is a virtually intractable problem for governments seeking to balance economic interests and public health concerns, in that any heavy-handed regulation would have a huge impact on virtually the entire inventory of commercial buildings.

In other jurisdictions, the approach has been to require landlords to maintain a register of the status of asbestos in their buildings, to carry out regular inspections, and to remediate and remove only the asbestos which, by virtue of its deterioration or its contact with ambient air, risks releasing fibres. Strict safety regulations then apply to the remediation process, in order to protect workers. In addition, landlords normally have a duty to disclose the presence of asbestos to tenants and contractors, as well as to have a management plan for the asbestos.

The issue of asbestos management and liability has been the subject of extensive regulation and litigation in the UK. In terms of asbestos management, the UK regulatory regime places responsibility for commercial buildings on the “duty holder,” essentially defined as the entity with contractual control of the relevant premises. The duty holder is usually the owner of the building, but the concept can also extend to other entities such as management companies and long term commercial tenants whose leases impose on them responsibility for building maintenance. It is a proactive duty to identify asbestos, assess its condition, and manage it appropriately. There are criminal sanctions for non-compliance.

In Québec, however, with certain minor exceptions, the regulator has instead placed the onus of maintaining a register, conducting inspections, and generally protecting people from the dangers of asbestos fibres in their workspace on employers, in the context of occupational health and safety legislation. The tenants of office buildings are usually the employers of the people who work there. In commercial real estate terms therefore, asbestos management in Québec has been primarily a tenant responsibility, as opposed to a landlord responsibility.

That playing field may be on the verge of a change, if Québec follows the BAPE recommendations. In the opinion of the BAPE, this employer-led approach is “neither efficient nor rigorous,” and it suggests instead imposing obligations on building owners. Québec seems therefore likely, in the near future, to harmonize its regulatory approach for the management of asbestos in commercial buildings with other jurisdictions.

Large-scale landlords with a national or international scope to their holdings will already have in place sophisticated management systems to deal with the presence of asbestos in their buildings. This potential change in Québec will have little impact on their operations. More regional players will however need to quickly get up to speed on any new regulations and adapt their systems, practices (and cost structures) accordingly.

While it may seem counter-intuitive, landlords in Québec and elsewhere may in fact want Québec to take this opportunity to go even further – to prescribe more than the standard “tick the box” obligations normally imposed on commercial property owners, in order to provide greater certainty to the parties.

Asbestos is a serious problem, but it can be managed. For the owners of the current inventory of commercial buildings, the business of leasing space to their tenants must go on, asbestos or no asbestos.

A Covid-related recession or change in long-term corporate occupancy requirements may already be poised to negatively affect the demand for office rental space. Ongoing uncertainty as to the liability of good-faith landlords for otherwise inert asbestos risks further disruption to the market.

In the absence of clear statutory liability rules, a private market-dictated approach to managing landlord-tenant liability for asbestos could, in a worst case, lead to some office towers becoming “stranded assets.”

With this BAPE report now on the record, Québec has an opportunity to dig more fully into the asbestos situation and come up with some comprehensive and useful regulatory changes. In particular, Québec could lead the way in prescribing more substantive and workable rules as to how to deal with the asbestos currently present in commercial buildings. For example, a constructive approach could be based on compliance with objective air quality standards, much like the way other noxious substances in the workplace are dealt with. The Dentons real estate team will be watching closely. Stay tuned.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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