By Jeryl L. Olson, Rebecca A. Davis, Ilana R. Morady, Patrick D. Joyce, and Craig B. Simonsen
Seyfarth Synopsis: We noted earlier this year that the American Society for Testing and Materials (ASTM) was in the process of updating its Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process. The ASTM Standard for Phase I Environmental Site Assessments is evaluated every eight years, and the most recent update, ASTM E1527 – 21, has now been published.
The ASTM Standard is designed to guide prospective purchasers of contaminated properties through the processes and practices necessary to meet “all appropriate inquiries” under the Comprehensive Environmental Response, Compensation and Liability Act. The new ASTM E1527-21 standard significantly revises a number of the prior ASTM E1527-13 provisions, and clarifies a number of key terms and requirements. Significant changes include:
- A requirement for enhanced research into the history of the subject property and adjoining properties, as well as enhanced site reconnaissance requirements;
- Key definitional changes to “Recognized Environmental Condition” (REC); “Controlled Recognized Environmental Condition” (CREC); and “Historical Recognized Environmental Condition” (HREC), which are updated to reduce misclassifications of known or likely hazardous material and petroleum product releases affecting subject properties;
- Clarification as to the meaning of “Property Use Limitation” and “Significant Data Gap”;
- Clarification of the date on when the 180-day shelf life of the Phase I report commences;
- Guidance on how to address emerging contaminants, such as per- and polyfluoroalkyl substances; and
- Comprehensive appendices that include revised definitions and a flow chart to identify and distinguish RECS, HRECs, and CRECs.
The new ASTM Standard is intended to provide additional information (and provide the basis for defenses to certain CERCLA-type liabilities) for protective purchasers by revealing additional conditions not previously considered to be relevant to due diligence or the defenses. However, there are significant additional consequences.
For example, notwithstanding the new standard clarifies that a requirement for Phase II testing is not mandated as a result of findings, many lenders (and institutional purchasers/investors) will still require such testing be performed, adding not only to the costs of environmental due diligence, but also to the ultimate consequences of the additional due diligence.
Particularly in states that require disclosure of known contamination discovered during due diligence, the expanded ASTM Standard will force properties into cleanups that otherwise would not be required but for the real estate transaction. This could be true even where the contamination was caused in the far-distant past, by some unknown party or long-ago owner/operator, or where the contamination is from an unrelated nearby property.
This consequence of forcing more properties into cleanup affects not only purchasers, but also sellers, as the parties will by necessity negotiate responsibility for due diligence costs, cleanup costs, and the administrative costs of negotiating “NFAs” and “NFRs” with state agencies.
Perhaps it’s time for the real estate industry to examine whether the value of the protections from CERCLA liability (rarely asserted as defenses to cleanup liability in our considerable experience) outweigh the consequences of adhering to the new standard that imposes more scrutiny on historical operations and adjacent properties unrelated to the subject property?
Feel free to reach out to the authors, one of Seyfarth Shaw’s Environmental Compliance, Enforcement & Permitting Team members, or your Seyfarth attorney with any questions on this important topic.