Copyright 2009, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Environmental Law, December 2009
This bulletin discusses a recent Quebec Court decision which considered whether asbestos-containing insulation amounts to a latent defect. It also provides a brief overview of how asbestos-containing materials (ACM) are regulated in Quebec and identifies some common situations faced by industry.
Asbestos as a Latent Defect
In September, the Quebec Court rejected a claim against former homeowners for C$7,000 in asbestos removal costs. Although the new owners never had a problem with the material, when they tried to sell the house, interested buyers found traces of asbestos (0.1 - 1%) in the vermiculite insulation lining the crawl space in the attic over the garage. The decision contains an analysis of Article 1726 of the Quebec Civil Code, regarding the warranty against latent defects, as it relates to asbestos. Article 1726 reads:
1726. The seller is bound to warrant the buyer that the property and its accessories are, at the time of the sale, free of latent defects which render it unfit for the use for which it was intended or which so diminish its usefulness that the buyer would not have bought it or paid so high a price if he had been aware of them.
The seller is not bound, however, to warrant against any latent defect known to the buyer or any apparent defect; an apparent defect is a defect that can be perceived by a prudent and diligent buyer without any need of expert assistance.
The Quebec Court decision in Hamel v. Croteau upholds earlier judgments that found that the presence of asbestos is not in itself a defect since it does not render the home unusable. Although precautions must be taken to avoid disturbing the material, this does not amount to a defect. And though asbestos insulation means higher demolition costs, the warranty against latent defects covers the use of the home, not demolition.
The Environment Quality Act
Quebec's Environment Quality Act (EQA) defines "hazardous material" as a material which, by reason of its properties, is a hazard to health or to the environment and which, within the meaning of a regulation adopted under the act, is explosive, gaseous, flammable, poisonous, radioactive, corrosive, oxidizing or leachable or is designated as a hazardous material, and any object classed by regulation as a hazardous material. The Hazardous Materials Regulation contains a list of materials that "do not constitute hazardous materials." The list includes the following, listed as a group: "bituminous concrete, asphalt shingles, solid plastic, solid rubber and asbestos." Therefore, none of the requirements of the Hazardous Materials Regulation apply to the use, management, and disposal of asbestos.
The Occupational Health and Safety Act
Three regulations adopted under Quebec's Occupational Health and Safety Act regulate protection of workers from asbestos: the Occupational Health and Safety Regulation, the Safety Code for the Construction Industry, and the Regulation Respecting Pulmonary Health Examinations for Mine Workers. The first regulation applies to employers generally. It requires annual air testing in workplaces with 50 employees or more, where workers are exposed to asbestos. It also contains instructions on when protective equipment must be worn and how to deal with scraps containing asbestos, and specifies that when an employer does renovations in a building containing asbestos, compliance with the Safety Code for the Construction Industry is required.
(a) Definitions in Contracts
Standard form commercial contracts often include asbestos within the definition of hazardous substances and then ask the seller or landlord to warrant that the facility is free of hazardous substances. Since asbestos is not considered to be a hazardous substance under Quebec environmental law, when a transaction involves a Quebec property, asbestos should either be removed from the contract's definition of hazardous substances, or the warranty given by the seller or landlord should be qualified as follows: "there are no Hazardous Substances at the Facility except in amounts and under conditions that comply with applicable Environmental Laws."
(b) Facility Shutdown
The Hazardous Materials Regulation requires permit holders under the EQA s. 70.9 and companies that operate in listed industrial sectors to notify the Ministry of Sustainable Development, Lands and Parks (MSDEP) 30 days in advance of facility shutdown. It then requires that all hazardous materials be removed from the site and that buildings either be decontaminated or demolished and building materials removed from the site for proper disposal. Since asbestos is not a "hazardous material," this obligation does not extend to asbestos.
(c) Facility Sale
Potential buyers normally want to know whether the buildings contain asbestos. Sellers often don't know. A common approach for sellers has been to say: "Given the age of the building, it likely contains ACM (asbestoscontaining material). No intrusive investigation has been done."
And so buildings have been passed on from seller to buyer for years. But since 2003, buyers of industrial facilities are taking a closer look at latent environmental liabilities, because the law requires them, upon facility shutdown or change of use, to conduct a site assessment and to clean up any impacted soil and groundwater. Sellers are sometimes willing to accept a reduced purchase price because of these future clean-up costs. What is trickier is asbestos removal and disposal. Since there is no legal requirement to remove asbestos from the premises, sellers are not willing to assume that cost. Buyers, on the other hand, do not wish to face the cost of asbestos removal if and when they tear down or retrofit buildings to carry on new industrial activities. The result is that some facilities are becoming tough to sell: not because of soil or groundwater issues, but because of the "white elephant" factory buildings.