On December 30, 2013, the United States Environmental Protection Agency (EPA) issued a final rule relating to the bona fide prospective purchaser defense to CERCLA. EPA has authorized prospective purchasers of real estate to use the new ASTM E1527-13 Phase I Environmental Assessment (Phase I) standard (2013 ASTM standard) when conducting “all appropriate inquiries” to satisfy the CERCLA defense. See 78 Fed. Reg. 79319. Though the new rule authorizes purchasers to satisfy all appropriate inquiries by conducting Phase I’s under either (a) the new 2013 ASTM standard, or (b) the former E1527-05 ASTM standard (2005 ASTM standard), EPA recommends that consultants conduct Phase I’s under the 2013 ASTM standard.

The ASTM E1527-13 standard will soon become the industry norm in real estate transactions. This article discusses the key changes in the new standard.

Background

Under the federal CERCLA or Superfund law, with few exceptions, owners of contaminated property are jointly and severally liable for contamination even if they did not dispose of the hazardous substances. Recognizing the chilling effect this law had on real estate transactions, in 2002 Congress amended CERCLA to provide a "bona fide prospective purchaser" defense. This defense protects purchasers of contaminated property as long as they, among other things, make "all appropriate inquiries" into the property's previous ownership, uses and environmental conditions. The Act required EPA to issue regulations defining all appropriate inquiries. See Federal Amendments to Superfund Law Offer Protection - Purchasers Can Shield Themselves.

In November 2005, EPA issued regulations that set standards and practices for all appropriate inquiries by referencing the ASTM E1527-05 “Standard Practice for Environmental Assessments: Phase I: Environmental Assessment Process,” and authorized its use to comply with the all appropriate inquiries rule. See New EPA Regulations Require Updated Environmental Phase I Reports. On December 30, 2013, EPA issued a new rule allowing the use of the 2013 ASTM standard to comply with all appropriate inquiries. In the new rule, EPA states that it intends to remove the authority to use the E1527-05 standard.

Major Changes in The New ASTM E1527-13 Standard

According to the EPA, ASTM E1527-13 is an enhanced standard that provides an improved process for parties who choose to undertake all appropriate environmental inquiries. Key changes from the 2005 ASTM standard include:

Revised Definition of Recognized Environmental Conditions – Recognized Environmental Conditions (RECs) are environmental site conditions found by the consultant that often require further investigation. ASTM E1527-13 more clearly focuses the RECs definition on actual or potential “releases to the environment.” The revised definition is more useful to prospective purchasers, as it tracks conditions which could lead to potential liability under CERCLA.

Revised Definition of Historical Recognized Environmental Conditions – A historical recognized environmental condition (HREC) is an environmental condition that has been remediated to applicable standards. Under this definition, the term HREC can be misleading. For instance an industrial site that contains large amounts of contamination may satisfy applicable state standards, as long as the contamination is covered by “engineered barriers” such as asphalt. Under the 2005 ASTM standard, the contamination at such industrial site would be considered a historical REC, which could lead a purchaser to incorrectly conclude that the site has been fully remediated. In fact, if the asphalt cover is removed, the site could pose a major environmental threat. To address this ambiguity, ASTM E1327-13 restricts the definition of HREC to apply only to contamination that has been remediated to an unrestricted cleanup standard (ie., no engineered barriers or use restrictions are required).

The New Controlled Recognized Environmental Condition – To address the revised definition of HREC, the new ASTM standard introduces a new term, Controlled Recognized Environmental Conditions (CREC). CRECs are conditions that do not require further remediation as long as controlled conditions, such as engineered barriers, remain in place. Identification of CRECs can be very helpful to real estate purchasers. Purchasers will now more easily understand, for instance, that if they change the configuration of property in which a CREC has been identified, and dig into contaminated soils, they may incur significant cleanup costs.

Addressing Soil Gas/Vapor Intrusion – Vapor intrusion has become, in the last few years, a major potential environmental concern of government regulators. See Illinois Follows Vapor Intrusion Regulation Trend. While the new ASTM standard does not require Phase I’s to include an extensive vapor intrusion analysis, it does require consultants to evaluate whether there is a potential soil gas release which poses a risk to human health.

Enhanced Regulatory File Reviews – Under the ASTM E1527-05 standard, consultants often conduct little or no review of government regulatory files. The 2013 ASTM standard establishes a presumption, subject to exception, that the consultant should review agency files to further investigate the site or adjacent properties. As a practical matter, it appears likely that the 2013 ASTM standard will cause consultants to enhance their review of publicly-available files.

Recommendations Are Not Required - ASTM E1527-13 clarifies that consultants need not make recommendations as to whether additional environmental work is necessary. Instead, consultants must only identify the presence or potential presence of environmental conditions such as RECs or CRECs. This is an important clarification. Many real estate purchasers believe that the issue of whether or not to perform further environmental investigation is a business decision. These purchasers prefer that their environmental consultants not issue opinions as to how to proceed. The 2013 ASTM standard makes it clear to consultants that they can comply with industry protocol without making recommendations.

Conclusion

The 2013 ASTM standard provides prospective purchasers of real estate with a clearer picture of potential environmental conditions. Though it has not yet rejected the ASTM E1527-05 standard, EPA has, in connection with the bona fide prospective purchaser defense, now officially endorsed the 2013 ASTM standard. Prospective purchasers of real estate should request environmental consultants to undertake Phase I Environmental Assessments under the ASTM E1527-13 standard.