HUD’s Office of Housing and the Federal Housing Administration’s adoption of a new technical standard for conducting Phase I Environmental Site Assessments (“Phase I ESA”) took effect on May 16, 2014. Participants in Office of Housing/FHA programs, funding recipients, FHA-insured mortgagees, and contractors must now use ASTM International’s technical standard ASTM E 1527-13 (“the 2013 standard”) when conducting Phase I ESAs.

A Phase I ESA is the environmental review that evaluates previous uses of property and evidence of contamination that might adversely affect occupants. Several Office of Housing or FHA guidance documents require that Phase I ESAs meet ASTM International’s technical standard ASTM E 1527-05 (“the 2005 standard”). In November 2013, ASTM published a revised standard for Phase I ESAs. HUD’s notice means the 2013 standard replaces the 2005 standard in applicable Office of Housing or FHA guidance.

The new standard does not establish a new approach to conducting environmental site assessments, but instead clarifies and amends the 2005 standard in several ways. Three specific changes are of note here.

• The new standard distinguishes among a “Recognized Environmental Condition” (“REC”), a “Controlled Recognized Environmental Condition” (“CREC”), and a “Historical Recognized Environmental Condition” (“HREC”). CREC is a new term and applies to a release that has been addressed to the satisfaction of a regulatory authority but where contamination has been allowed to remain in place subject to conditions or restrictions. While Phase I ESAs typically have reported a CREC as a HREC, the new term clarifies that certain conditions should be identified distinctly because they may indicate that a property may not be appropriate for all uses, including residential uses, notwithstanding prior response actions to address contamination.
• The 2013 standard requires the environmental professional to identify HRECs—contamination that has been cleaned up to allow unrestricted residential use at the site—and to evaluate whether they should be identified as a REC and investigated further because of revised regulatory cleanup criteria.
• The 2013 standard clarifies that the Phase I ESA should evaluate the potential for releases of hazardous substances that migrate by vapor in soil or subsurface strata. HUD’s notice indicates that this clarification does not change the requirements for Office of Housing/FHA Phase I ESA reports, because for several years HUD has required a vapor encroachment survey as part of the Phase I ESA.

HUD’s action follows the U.S. Environmental Protection Agency’s adoption of the ASTM 2013 standard as applicable to performing “all appropriate inquiries” under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”). CERCLA provides that owners and operators of real property at which hazardous substances have been released may be liable for cleaning up that contamination, even if they did not cause or contribute to the contamination. However, the statute offers prospective landowners a defense.