Status of the new Phase I environmental site assessment standard

Attorney Lynn Preston

The American Society for Testing and Materials (ASTM) recently updated its standard for conducting Phase I Environmental Site Assessments (Phase I).

This ASTM standard specifies what constitutes “good commercial and customary practice for conducting an environmental site assessment of a parcel of commercial real estate in the United States of America with respect to the range of contaminants within the scope of the Comprehensive Environmental Response, Compensation & Liability (CERCLA) Act (42 U.S.C. 9601) and petroleum products,” generally known as “all appropriate inquiries” (AAI).

The primary reason for performing most Phase I’s is so that a purchaser of real property or a lender may qualify for certain defenses to liability under CERCLA (Superfund statute) (e.g., bona fide prospective purchaser, lender liability “safe harbors”). To qualify for these defenses, the landowner or lender must obtain through a qualified professional a current and comprehensive Phase I that includes AAI, i.e., meets the ASTM Phase I standard.

Once approved and adopted into the federal regulations, the new standard would be considered compliant with the AAI regulations.

On March 14, 2022, the United States Environmental Protection Agency (EPA) issued a direct final rule which would have approved the updated ASTM standard, E1527-21, to be used to satisfy AAI.

However, on May 2, 2022, EPA published the withdrawal of the direct final rule as a result of the receipt of adverse comments and acknowledged that they will be addressing the comments in a subsequent final action.

In preparation for the issuance of the new standard, to ensure the upcoming AAI requirements are met, those performing and using Phase I’s will need to review and understand some of these important changes below:

‘Recognized Environmental Condition’ (REC)

Mostly for clarification purposes, the new standard updates the definition of Recognized Environmental Conditions, commonly known as “RECs.”  RECs are often considered the most important part of the Phase I, yet subjective readings of the definition can lead to inconsistences in determining what is or is not a REC.  Likely, as a result of these inconsistencies, the ASTM standards’ committee has also added a new Appendix to the new standard, Appendix X4, which attempts to provide further clarification, via examples, for what does and does not constitute a REC.

Historical REC (HREC)

The new standard requires an evaluation of site conditions previously categorized as an HREC (i.e., a condition where releases, at the time of the assessment, have been addressed to the satisfaction of the applicable regulatory authority and the property is not subject to any use or other restrictions relating to the HREC condition).  Under the new standard the qualified professional must re-evaluate whether new conditions are present or new information is identified during the Phase I, such as regulatory changes or a new contamination migration pathway, to determine whether the condition in question should remain an HREC or be re-classified as a REC – the professional cannot simply rely on HREC determinations rendered in earlier reports.

Viability (shelf-life)

Like the existing Standard, the new standard still provides that the Phase I is valid for 180 days following completion. However, the new standard clarifies when the viability clock starts ticking and requires specific component timeframes be added to the report.  Specifically, the new standard requires that the Phase I contain the dates on which interviews, review of government records, visual inspections, and declaration by environmental professional were conducted or made (date-specific report components).

Also, like the existing Standard, the new standard provides that the Phase I can be relied on as long as it was completed within one year of the date of property acquisition or transfer, provided the date-specific report components and searches for environmental cleanup liens were updated prior to and within 180 days of the date of acquisition or transfer.  Significantly, the new standard provides that the date of earliest completion of one of the four date-specific report components is the trigger for evaluating compliance with the 180-day requirements and one-year shelf life, and not the date of the Phase I Report.

Historical sources

No longer discretionary, the following sources must be used to determine previous uses and occupancies of the subject property and adjoining properties, if, based on the judgment of the environmental professional, they are reasonably ascertainable, likely to be useful, and applicable to the subject property: aerial photographs; fire insurance maps; local street directories; and historical topographic maps.  Also, these same sources must be reviewed for adjoining properties where available and likely useful in determining whether past uses of the adjoining properties have led to RECs on the subject property.

Emerging contaminants

The new standard makes clear that emerging contaminants, such as per- and polyfluoroalkyl substances (PFAS), are considered “Non-Scope Considerations” (i.e., conditions that may be added by the user, but are outside the scope of the Phase I), if and until they are regulated under Superfund.  Since PFAS are not currently federally regulated “hazardous substances” under Superfund (at least at the time of this article), they are considered environmental issues or conditions outside the scope of the ASTM Phase I.  Be aware, however, that certain states may have adopted specific regulations relating to PFAS and/or other emerging contaminants that, in order to take advantage of state specific liability protections, may require assessment beyond the scope of the ASTM Phase 1.

Takeaways

• Changes are coming to the regulatory standard for performing Phase I’s — make sure you review them.
• Those involved in commercial real estate transactions, including lenders, wanting protections afforded by applicable federal and state defenses to landowner liability, should consider whether these updates to the standard will require changes to existing transaction processes and consultant scopes of work for Phase I reports.
• Make sure your Phase I complies with the updated “shelf-life” requirements.
• PFAS issues are complicated – there are no “safe harbors” – at least not yet; check with legal counsel before finalizing the scope of your Phase I.