On December 15, 2022, the U.S. Environmental Protection Agency (EPA) issued a final rule that endorses ASTM E1527-21 which provides a uniform standard for performing Phase I Environmental Assessments. The new rule will have an effective date of February 13, 2023. The EPA endorsement of the new ASTM Phase I standard means that the procedures established in the new standard are now deemed to satisfy that U.S. EPA “All Appropriate Inquiries” rule (AAI). EPA’s AAI rule establishes the level of environmental due diligence necessary to qualify for certain CERCLA liability defenses, such as the Bona Fide Purchaser Defense (BFPD). The BFPD protects innocent purchasers from liability for historical contamination on property they buy or lease.
EPA drew criticism when it previously allowed both the old ASTM E-1527-13 standard and the new ASTM E-1527-21 standard to both meet AAI. Traditionally, when the ASTM procedures are updated the expectation has been the “new and improved” procedures should be followed in all cases. Allowing two different ASTM standards to meet AAI created confusion with environmental professionals. When EPA’s new rule goes into effect on February 13, 2023, only Phase I assessment performed in accordance with ASTM E1527-21 will qualify for AAI.
What is a Phase I Assessment?
Phase I assessments are a review of federal/state environmental databases, a review of historical records related to the property, interviews of regulators and the current property owner and a site walkover to look for any evidence of the “confirmed presence, likely presence or a material threat of the presence of a hazardous substance or petroleum products” at the property. Any evidence of a release or likely release is called a “recognized environmental conditions” (RECs). Depending on the nature of the transaction, a finding of a REC on the property potentially triggers the need for sampling pursuant to a Phase II environmental assessment.
Why is compliance with the new ASTM 1527-21 important?
There are a number of important changes brought about by the new ASTM standard. Because under AAI, the burden to establish a CERCLA liability defense is on the prospective purchaser or tenant, it is critical to review the Phase I report for compliance with AAI and the new ASTM E1527-21 standard.
What are some of the noteworthy changes included in ASTM E1527-21?
Some of the most noteworthy changes included in the new ASTM standard include the following:
- Emerging Contaminants– AAI is focused on due diligence to establish CERCLA defenses. CERCLA liability pertains to contamination from substances that have been designed “hazardous substances” under the statute. Largely driven by the growing concern surrounding per- and polyfluoroalkyl substances (PFAS), which are not yet designated as “hazardous substances,” the new ASTM E1527-21 standard provides for an optional review for “emerging contaminants.” These so called “emerging contaminants” are substances that are known or suspected to cause adverse effects to human health and/or the environment, but may not yet be regulated. EPA has announced its intention to list PFOS and PFOA (two PFAS compounds) as “hazardous substances” under CERCLA at some point in 2023. Even if those compounds are listed, there are thousands of PFAS compounds which are being evaluated and would still be considered emerging contaminants even after PFOA and PFOS are listed. While the new ASTM standard provides the option to review for “emerging contaminants,” given the significant public health and liability concerns associated with contaminants such as PFAS, it is highly recommended that you discuss with your environmental attorney and/or Environmental Professional (EP) whether to include review of emerging contaminants (especially PFAS) as part of your Phase I assessments. For example, in states which currently regulate PFAS, serious consideration should be given to including a review of PFAS compounds as part of your Phase I assessment.
- Expiration of a Phase I– The old ASTM standard established that a Phase I report was still valid if it was completed no more than 180 days prior to acquisition or up to one year if certain portions of the reports are updated after six months. However, the old standard did not require the report to specify when certain portions of the report were completed. The new ASTM standard requires a date to be specified for the five components that are especially time sensitive- interviews, searches for recorded environmental cleanup liens, review of government records, site reconnaissance of the subject property and the declaration by the Environmental Professional. The revised standard also clarifies that the clock begins to tick for the 180 day time period when the first of these time sensitive critical tasks were performed.
- New REC Definition- The new ASTM standards tweaks the definition of what constitutes a REC. The different definitions are shown below. The key change surrounds the addition of the qualifier “likely” in front of “release to the environment.” The comments in the new ASTM standard suggest this change is an attempt to reduce the variation in REC findings between EPs. Some EPs would only make a REC finding if the due diligence confirmed there was a release at the property. However, some EPs would make a REC findings if, based on their experience, the historical use of the property resulted in a high probability of releases. For example, a dry cleaner operating in a strip mall for decades. The EP must include in the Opinions Section the basis for their conclusion that a release was “likely.”
- Under ASTM E1527-13, a REC is defined as the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property: (1) due to release to the environment; (2) under conditions indicative of a release to the environment; or (3) under conditions that pose a material threat of a future release to the environment.
- Under ASTM E1527-21, a REC means (1) the presence of hazardous substances or petroleum due to a release to the environment; (2) the likely presence of hazardous substances or petroleum products due to a likely release to the environment; or (3) the presence of hazardous substances or petroleum products under conditions that pose a material threat of a future release to the environment.
- Historical Document Review- The new ASTM standard expressly requires the EP to review certain historical sources of information related to the property. Specifically, the EPA must review aerial photographs, topographic maps, fire insurance maps and local street directories. If one of these historical sources is not reviewed or not available, the EP must include an explanation as to why that source was not reviewed. Also, these same historical sources must be reviewed for properties adjoining the target property.
- Findings, Opinions and Conclusions– There has been a lot of variation as to the content of the Findings, Opinions and Conclusions Section of Phase I reports among EPs. The new ASTM standard clarifies what should be included in each portion. The Findings Section should summarize the key facts discovered as part of the review which may lead the EP to conclude either a REC is present or no RECs are present on the property. The Opinions Section can be combined with the Findings section and should set forth the EPs explanation for its finding of whether there are RECs present or no RECs present on the property. Finally, the Conclusions Section must clearly identify all RECs, controlled CRECs and any significant data gaps.
- Recommendations for a Phase II assessment- The new ASTM standard does require the EPA to opine as to whether a Phase II assessment may be necessary. However, specific recommendations by the EP to perform a Phase II are still optional.
- Basis for Controlled Recognized Environmental Conditions (CRECs)- The definition of a CREC was clarified to be any REC that was addressed using a “property use limitation” (Example: deed restriction to commercial/industrial standards). The new ASTM standard requires the EP to specify the basis of its finding of a CREC along with any regulatory documents that relate to the finding of a CREC. For example, if a No Further Action Letter was issued that includes engineering controls, the EP must include the NFA as part of the Phase I so the User understands its obligations going forward relative to the property post-acquisition.
- Definition of “Significant Data Gap”- If certain information was not available to the EP in performing the Phase I assessment, the EP is supposed to evaluate whether the missing information (referred to as a “data gap”) rises to the level of being significant. The new ASTM standard includes a definition of “significant data gap” which means “affects the ability of the environmental professional to identify a recognized environmental condition.”
- Title Searches- The new ASTM standard clarifies that it is the User’s obligation to search title for activity and land use restrictions or environmental liens, the EP doesn’t necessarily have to perform the review. A title review must go back to 1980.
- Examples of HREC and CRECs- To provide greater clarity of the differences between “Historical Recognized Environmental Conditions” and CRECs, the new ASTM standard provides examples. For an HREC, a release of “hazardous substances” must be addressed without any restrictions and any remaining contamination must be below residential cleanup standards.