New Phase I Environmental Site Assessment Standard Makes Strides Towards Addressing Regulatory Uncertainty Associated With Emerging Contaminants, Such as PFAS

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In November 2021, ASTM International published a new technical standard for the Phase I environmental site assessment (ESA) process – E1527-21. The new E1527-21 largely mirrors the previous E1527-13 ASTM standard, adopted in 2013. However, key changes to the ASTM standard expand the scope of the environmental due diligence process to potentially include enhanced historical research and emerging contaminants not currently regulated pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The inclusion of emerging contaminants is particularly noteworthy and timely, as federal and State agencies work to regulate and create liability for a broad class of chemicals known as per- and polyfluoroalkyl substances (PFAS), which are highly fluorinated manmade compounds, not yet listed as hazardous substances under CERCLA.

Avoiding CERCLA Liability

The U.S. Environmental Protection Agency’s (EPA) all appropriate inquiries (AAI) rule describes the minimum level of environmental due diligence required to obtain certain liability protections under CERCLA. Any party seeking protection from CERCLA liability as an innocent landowner, contiguous property owner, or bona fide prospective purchaser must comply with the AAI rule, among other requirements. (40 C.F.R. § 312.1(b).) Additionally, recipients of federal Brownfield grants must comply with AAI to characterize and assess the site. Consequently, most commercial real estate transactions require or implicate the need for a Phase I ESA that complies with the AAI rule to identify existing and potential environmental contamination and related liabilities at a property.

The AAI rule further provides that ASTM International’s earlier standard – E1527-13 – is consistent with regulatory AAI requirements and therefore can be used for satisfaction thereof. (40 C.F.R. § 312.11.) Consequently, the vast majority of environmental professionals use ASTM International’s Phase I technical standards when completing AAI as part of real estate transaction due diligence. However, real estate professionals should be aware that EPA has not yet updated the AAI rule to provide that compliance with the new E1527-21 satisfies CERCLA’s AAI requirements pertinent to liability protection. Nevertheless, since the new standard incorporates the ASTM requirements of the former standard plus additional requirements, compliance with the new standard also should provide AAI protections. And this is likely to be updated officially in the near future.

Historical Use Research

To satisfy the historical research component of AAI, environmental professionals consult historical sources to develop a timeline of prior property and surrounding area uses to evaluate the likelihood of hazardous substance presence and impacts. The new E1527-21 standard expands the scope of historical due diligence research for the subject property, adjoining properties, and the surrounding area.

Subject Property

For the subject property, the 2013 standard requires environmental professionals to only review as many historical resources as necessary to determine the likelihood that past uses resulted in the presence of hazardous substances. The new 2021 standard provides significantly more detail regarding the types of resources that environmental professionals must examine to satisfy the requirements of E1527-21, including (1) aerial photographs, (2) fire insurance maps, (3) local street directories, and (4) topographic maps. Moreover, if the subject property was used for industrial, manufacturing, and now retail purposes, the environmental professional must review additional historical resources, such as (1) building department records, (2) interviews with persons knowledgeable about past uses, (3) property tax files, and (4) zoning/land use records must also be consulted.

Adjoining Property & Surrounding Area 

The 2021 standard also adds specific requirements for researching the history of adjoining properties and the surrounding area. For adjoining properties, the environmental professional must also review, where consulted for the subject property (1) aerial photographs, (2) fire insurance maps, (3) local street directories, and (4) topographic maps. If the environmental professional does not consult these resources for the adjoining property, but did for the subject property, (s)he must explain why in the Phase I ESA report. Pursuant to the updated standard, the environmental professional may also need to consult additional resources, if (s)he believes such additional review is necessary to identify historical uses, based on professional judgment and a number of specifically enumerated factors, such as known hydrogeologic/geologic conditions that may indicate a high probability of hazardous substances or petroleum products migrating to the subject property; the extent to which information is reasonably ascertainable; the extent to which information is likely to be useful; the time and cost involved in reviewing such resources; and local good commercial and customary practice.

The 2021 standard also requires that uses in the surrounding area be identified. However, uses of properties in the surrounding area must be identified only to the extent that the information is revealed in the course of researching the subject property itself. For example, if an aerial photograph of the subject property also shows the surrounding area, the environmental professional must include the identifiable surrounding uses in the Phase I ESA report.

Whether the expanded scope of historical use research implicates more work largely depends on the type of property. For example, the scope of work and associated costs will likely increase for historical use research of properties located in dense urban areas with surrounding retail or manufacturing – especially in areas of high tenant turnover. However, the new requirements are less likely to affect the amount of work required to research the historical uses of more rural properties with surrounding forest or agricultural uses.

PFAS & Emerging Contaminants

PFAS have become a growing concern across various industries as regulation at federal and State levels continue to emerge and evolve. Recent State regulatory activity has focused on additional emerging contaminants, such as 1,2,3-Trichloropropane (1,2,3-TCP) and Perchlorate. The 2021 standard includes specific directions for how emerging contaminants, like PFAS, 1,2,3-TCP and/or Perchlorate, may be addressed in ESAs. However, the new standard does not create any requirements that Phase I ESAs address PFAS 1,2,3-TCP, or Perchlorate, specifically.

The 2021 standard adds PFAS and other emerging contaminants to the list of “non-scope issues” that a purchaser may want to evaluate as a business risk. PFAS is an umbrella term covering thousands of chemicals used in a wide range of products and industrial applications. PFAS are also highly ubiquitous, have been found in drinking water supplies, and are reported to have a variety of adverse health effects. PFAS are considered a non-scope issue because currently no PFAS are identified as hazardous substances under CERCLA. However, federal and State PFAS regulation, including under CERCLA may be forthcoming. (For additional information regarding potential future PFAS regulation please see USEPA Announces Major Actions to Address PFAS; California Water Utility Files Landmark PFAS Lawsuit in Federal District Court.) Consequently, parties conducting due diligence should evaluate whether the subject property was previously used in an industrial or manufacturing capacity that implicated PFAS use, and, if so, potentially analyze PFAS as a non-scope issue to assess business environmental risks that exist beyond the current scope of CERCLA liability, to potentially satisfy other federal and state requirements, or to prepare for the potential addition of PFAS to CERCLA’s definition of hazardous substances.

Conclusion

Those involved in commercial estate transactions should familiarize themselves with the new ASTM standard to ensure that the scope of any due diligence examination meets current industry standards. While the updated standard may require more work for consultants and increase associated costs, the expanded scope of historical use research may identify additional past uses that could have liability implications for subject properties. Additionally, the inclusion of PFAS and emerging contaminants as non-scope issues suggests that although not required, it may be prudent for parties to identify any potential use or past releases of PFAS and other emerging contaminants during the due diligence process. At a minimum, inclusion of these emerging contaminants in Phase I ESAs will help prospective landowners assess risks associated with property acquisition in the current regulatory landscape, which is in flux.

EPA has not yet updated the AAI rule to reference the 2021 standard as one afforded a presumption of compliance with the rule’s requirements. However, following the new standard should be deemed compliant with the AAI rule, given that E1527-21 clarifies and expands on the research required under the 2013 standard, and generally goes beyond what is currently required under the AAI rule itself for the development of a robust Phase I ESA that accounts for near-term regulatory uncertainty.

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