The U.S. Environmental Protection Agency (“U.S. EPA”) has revised the standards by which real property purchasers, lessees and environmental professionals should conduct a Phase I Environmental Site Assessment (“Phase I ESA”). Compliance with the new rule matters because failure to follow the new standard may cost a client the protection of important legal defenses to Superfund claims for past contamination discovered after the transaction closes.

The agency has taken final action to amend the standards for conducting an All Appropriate Inquiries (“AAI”) at 40 CFR part 312 to reference ASTM International’s E1527-21 “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process.” This action provides clarity to the industry and allows real property purchasers and lessees to use ASTM E1527-21 to fulfill the AAI requirements into prior ownership and use of a property, as well as qualify for certain defenses to liability for cleanup costs under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) as a contiguous, bona fide prospective purchaser or innocent landowner. The final rule will go into effect Feb. 13.

Finalization of this rule has taken some time, as U.S. EPA addressed several adverse comments filed by stakeholders in response to its earlier proposed rule and direct rule. In sum, stakeholders objected to the proposed rule because it failed to remove the reference to the superseded ASTM E1527-13 standard and allowed the continued use of ASTM E1527-13 to satisfy the agency’s AAI requirements. According to the filed comments, allowing the use of two standards would cause confusion, uncertainty and controversy in the marketplace on how to comply with the AAI. The commenters proposed removing the ASTM E1527-13 standard as a method to satisfy the AAI. In light of those comments, U.S. EPA withdrew the proposed rule May 2, 2022. In this final action, U.S. EPA stated that any recognition of ASTM E1527-13 as compliant with the AAI rule would end after one year.

Despite the sunset period for ASTM E1527-13, we recommend that real property purchasers, lessees and environmental professionals use the current ASTM E1527-21 standard to conduct a Phase I ESA. The updates in the revised standard help clarify important aspects of the process and should create more consistency in the practice of environmental professionals and the results of the Phase I ESA. (We discussed in March the changes in the revised standard.)

Moreover, there appears to be some ambiguity with regards to the sunset period for the ASTM E1527-13 standard. In Section I of the final rule’s preamble, it states that ASTM E1527-13 can be used “for up to one year after this rule becomes effective.” The sunset period, then, would be until Feb. 13, 2024. Later, however, in Section IV, it states that “the sunset period for removal of the reference to the ASTM E1527-13 Standard Practice for Environmental Site Assessments is one year from publication of this final rule” – that is, Dec. 15, 2023. This ambiguity is yet another reason to follow the ASTM E1527-21 standard when conducting any new Phase I ESAs.

In light of the changing landscape, it is important to work with knowledgeable and experienced environmental counsel and professionals to ensure that your Phase I ESA meets the requirements of the more stringent ASTM E1527-21 standard. The risk of losing certain liability protections from CERCLA liability is just too great.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.