Executive Summary – Key Legal and Evidentiary Issues

• Central issue was whether low-level asbestos contamination made the premises “unfit for occupancy” under the lease’s damage and abatement provisions.

• Tenant claimed the landlord breached lease duties to operate a “first-class” building and comply with OHS obligations—these arguments were rejected.

• Court found the building safe and ruled the tenant wrongfully repudiated the lease by vacating and ceasing rent.

• Parent company CNOOC Limited held liable under a Lease Indemnity Agreement for the tenant’s breach.

• Expert evidence on asbestos was partially excluded for exceeding the scope of permitted opinion and mischaracterizing safety.

• Insurance clauses required restoration from proceeds but did not shift asbestos remediation liability to the landlord.

Background and Facts

In CNOOC Petroleum North America ULC v 801 Seventh Inc, the plaintiff (CNOOC), a major energy company, entered into a long-term lease for nearly all rentable office space in a downtown Calgary high-rise owned by 801 Seventh Inc. and affiliated entities (the “Landlord”). In 2017, a hazardous materials survey revealed that sprayed-applied fireproofing (SAF) in the building contained asbestos (MK-5), specifically Libby vermiculite, known to carry trace amounts of amphibole asbestos?.

The SAF was friable (easily crumbled), and though testing showed low concentrations of asbestos—between 0.0002% and 0.038%, well below regulatory thresholds—CNOOC deemed the building unsafe?. By 2019, it vacated the premises, stopped paying rent, and attempted to terminate the lease.

Key Lease Terms and Insurance Provisions

The parties’ Amended Lease (2013) was central to the dispute. Particularly relevant were:

• Clause 17 – Damage, Destruction, or Unfitness for Occupancy:

  • Allowed termination if the premises were “damaged, destroyed or otherwise rendered unfit for occupancy.”

  • Provided for rent abatement during periods of unfitness due to health or safety concerns?.

  • Allowed either party to terminate the lease if, in the landlord’s architect’s opinion, restoration would take over a year?.

• Clause 16 – Landlord’s Obligations:

  • Required the landlord to comply with Occupational Health and Safety (OHS) laws, including the removal of hazardous substances when required?.

  • Required operation and maintenance of a “first-class” building?.

• Insurance Provisions:

  • Required both parties to maintain insurance.

  • Clause 17(f) required that insurance proceeds be used to repair and restore the premises, not for other purposes?.

Legal Issues

The core dispute centered on:

1. Whether the building was “unfit for occupancy” due to asbestos, triggering Clause 17.

2. Whether the Landlord breached its obligations under the lease.

3. Whether CNOOC had the right to terminate or was in anticipatory breach.

4. The interpretation and role of insurance and indemnity obligations.

5. The enforceability of a Lease Indemnity Agreement signed by CNOOC’s parent company, CNOOC Limited?.

2023 Mid-Trial Ruling – Expert Evidence

In 2023, Justice P.R. Jeffrey ruled on a mid-trial application regarding the admissibility of expert evidence:

• Admitted:

  • Evidence describing asbestos concentrations.

  • The term “clean” used to mean no fibre release.

• Excluded:

  • Assertions the building was “safe” (outside expert scope).

  • Statements on “non-respirable” particles, which exceeded their qualifications?.

This ruling clarified limits on overlapping and overreaching expert testimony and emphasized a trial judge’s “gatekeeper” role in assessing scientific evidence.

2025 Final Decision – Tenant Liable

In a detailed 173-page judgment, the Court ultimately ruled in favor of the Landlord:

• The Building Was Safe: The Court found that despite asbestos, the SAF posed no measurable health risk and was manageable in place under Alberta’s OHS Code?.

• Tenant Breached Lease: CNOOC wrongfully terminated the lease and stopped paying rent without legal justification?.

• Landlord Did Not Breach:

  • It had no statutory duty to remove the asbestos.

  • It complied with its contractual obligations as they related to maintenance and hazardous materials?.

• Lease Indemnity Enforced: CNOOC Limited, as parent guarantor, was held liable under its Lease Indemnity Agreement, due to the tenant’s breach?.

• Damages: The decision only determined liability, not damages. A second phase of the trial is required to quantify losses and allocate costs?.

Conclusion

This litigation underscores the complex intersection of commercial leasing, occupational health regulation, and contractual interpretation. It also illustrates the limits of invoking health concerns to avoid lease obligations when regulatory standards are technically met.

Key takeaways:

• Mere presence of asbestos isn’t sufficient to void a lease—risk and regulatory compliance are key.

• Courts interpret leases in light of commercial intent and practical context.

• Parties to long-term leases must tread carefully when invoking unfitness for occupancy as a basis for termination.