Revised Phase I ESA Standard Published

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On Nov 1, 2021, ASTM International (“ASTM”) released the revised standard for conducting Phase I Environmental Site Assessments (“Phase I ESAs”).  The new standard, ASTM 1527-21, which revises the 1527-13, is intended to address inconsistencies that have developed in current environmental due diligence practice, and to improve the overall quality of Phase I ESAs.

As background, the intent behind the ASTM 1527 was to provide a consistent standard for satisfying the Environmental Protection Agency’s (“EPA”) All Appropriate Inquiries (“AAI”) Rule when assessing current environmental conditions as part of the purchase or financing of commercial property.  Compliance with the AAI Rule is an essential element in obtaining protection from liability under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) as an innocent landowner, a contiguous property owner, a secured creditor, or a bona fide prospective purchaser (“BFPP”).  While EPA’s AAI Rule is separate from the ASTM 1527 standard, the AAI Rule provides that compliance with ASTM 1527-13 also satisfies the Rule, and therefore satisfies CERCLA’s requirements for environmental due diligence.

The ASTM 1527 accomplishes its goal by establishing a process to assess the presence or likely presence of a CERCLA Hazardous Substance (“HS”) or a petroleum product (“PP”) on the subject property.  The presence or likely presence of HS or PP is known as a Recognized Environmental Condition (“REC”).  The ASTM 1527 also requires environmental professionals to identify Historical RECs, or “HRECs”, and Controlled RECs, or “CRECs”.  RECs, HRECs, and CRECs each have a specific definition in the ASTM 1527 to inform a prospective buyer or lender regarding past and current conditions, whether those conditions have been remediated, and whether there are any risk-based controls on the property that address existing contamination.  The ASTM 1527 lays out the process for identifying RECs, HRECs, and CRECs through on site investigations, interviews, surveys, and review of historical data.

Since its release, inconsistencies have emerged in the implementation of the 1527-13, particularly in the manner of identifying a REC, HREC, and CREC, and their relationship to the subject property.  Further, the sheer number of individuals competing in the Phase I ESA preparation market, the volume of Phase I ESAs being prepared, and the demands for expediency and low cost by customers has resulted in inconsistent quality of reports.

In our practice, we often see reports that do not comply with the ASTM 1527-13 or AAI Rule, including reports that are too old, are prepared for a different user, are not properly certified, or which fail to contain important data.  The consequences of an insufficient report cannot be understated.  As highlighted recently in the case of Von Duprin LLC v. Major Holdings, LLC, a Phase I ESA that does not comply strictly with the ASTM 1527-13 standard does not meet CERCLA’s AAI requirements.  As such, the buyer or lender relying on the deficient report is not entitled to a CERCLA liability exemption where AAI is required and may therefore face significant CERCLA liability.

The revised ASTM 1527-21 seeks to address some of these inconsistencies and quality issues.  Some of these revisions include:

  • Updated the definitions of RECs, HRECs, and CRECs, along with a requirement for a more detailed explanation why a condition is a CREC or HREC;
  • A new definition for “Property Use Limitations” to more consistently and accurately identify CRECs, and distinguish them from RECs and HRECs;
  • A new Appendix that provides a flow chart and examples to assist in differentiating between RECs, HRECs, and CRECs;
  • Updated guidance on reconciling governmental data with physical site information;
  • Re-emphasize the need to fully research historical information of the subject property, including research into different addresses assigned to the parcel and the need to conduct interviews about historic uses of the property;
  • The need for more specificity regarding specific historical uses of the property, particularly if the property was used for retail or manufacturing;
  • Placing more emphasis on identifying uses of adjoining properties; and
  • A clearer definition of “Significant Data Gaps.”

One item of note is that, while practitioners expected the inclusion of PFAS in the revised standard, the ASTM 1527-21 instead discusses “emerging contaminants” more broadly as a potential non-scope consideration (meaning an analysis that seeks information of conditions other than HS and PP).  In addition, the revised standard encourages consideration of substances listed as HS under State law where the Phase I ESA is intended to satisfy both Federal and State due diligence requirements.

Although the ASTM 1527-21 is now available for use, EPA’s AAI Rule will continue to reference the ASTM 1527-13 until the AAI Rule is formally amended through EPA’s administrative rulemaking process, a process which can take a year or more.  In the interim, practitioners may be uncertain whether to continue use of the ASTM 1527-13 or begin using the ASTM 1527-21.  Since the ASTM 1527-13 is the standard specifically enumerated in EPA’s AAI Rule, but also in that the ASTM 1527-21 does not remove any portion of the 1527-13, practitioners should feel comfortable using either the historical or revised standard until the AAI Rule is amended.  If using the ASTM 1527-21, however, professionals preparing a Phase I ESA are still encouraged to cite to the ASTM 1527-13 while also noting that the Phase I ESA incorporates revised procedures delineated in the ASTM 1527-21.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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