EPA adopts final rule, effective February 13, 2023, establishing ASTM E1527-21 as the standard for satisfying AAI requirements and phasing out ASTM E1527-13.
By Aron Potash, Josh Marnitz, Phil Sandick, and Bruce Johnson
On December 15, 2022, the US Environmental Protection Agency (EPA) amended its rule for conducting “All Appropriate Inquiries” (AAI) under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) to incorporate a new standard for conducting Phase I Environmental Site Assessments (Phase I). Satisfying AAI is a critical step when acquiring or leasing real property. AAI is a prerequisite to certain safe harbors under CERCLA (and state analogues), which otherwise subjects property owners and operators to liability for investigating and remediating contamination regardless of fault.
When EPA’s final rule for conducting AAI (AAI rule) takes effect on February 13, 2023, it will allow for the use of the updated standard for conducting Phase Is recently published by ASTM International (ASTM) (i.e., ASTM E1527-21) when conducting AAI. One year after the final rule goes into effect, the previous Phase I standard, ASTM E1527-13, will no longer be sufficient to satisfy AAI. ASTM E1527-21 incorporates several changes that distinguish it from E1527-13, including expanding requirements for using historical sources, updating guidance on emerging contaminants, and expanding reporting requirements.
ASTM, an international standards organization (formerly known as the American Society for Testing and Materials) that develops and publishes technical standards. After ASTM approved ASTM E1527-21 in December 2021, EPA issued both a Proposed Final Rule and Direct Final Rule on March 14, 2022, amending the AAI Rule to reference the new standard. The Proposed Final Rule established a public comment period ending on April 13, 2022, and the Direct Final Rule was set to take effect in May 2022. Neither rule contemplated the phasing out of ASTM E1527-13.
EPA received comments expressing concern that continued recognition of ASTM E1527-13 would cause confusion in light of the new ASTM E1527-21. EPA withdrew the Direct Final Rule in response to these comments.
EPA’s newly issued AAI Rule addresses the issue by establishing a one-year phaseout period for ASTM E1527-13 that will begin on February 13, 2023. Accordingly, a Phase I prepared in accordance with ASTM E1527-13 must be completed before February 13, 2024 to be recognized as compliant with the AAI Rule.
Significance of AAI
As a general rule, under CERCLA, owners and operators of real property are jointly and severally liable — regardless of fault — for investigating and remediating contamination at real property they own or operate. The Small Business Liability Relief and Brownfields Revitalization Act was enacted in 2002 to establish three categories of landowners and tenants who are eligible for protection from CERCLA liability. The categories include Bona Fide Prospective Purchasers (BFPPs), Contiguous Property Owners (CPOs), and Innocent Landowners (ILOs).
To qualify as a BFPP or bona fide prospective tenant under CERCLA, a landowner or tenant must have become operator of the property after January 11, 2002, and must meet certain threshold criteria that include, but are not limited to, conducting AAI before becoming an owner or operator and demonstrating that they have no affiliation with a person who is potentially liable for response costs for any contamination at the facility. A BFPP must also abide by certain “continuing obligations,” which include all of the following:
- Taking reasonable steps to prevent releases of hazardous substances
- Stopping continuing releases
- Preventing or limiting exposure to releases
- Cooperating with responsible parties performing cleanup
- Complying with any applicable land use restrictions
- Providing legally required notices with respect to the discovery or release of any hazardous substance at the facility
CPO and ILO safe harbors generally hew to the same criteria as the BFPP safe harbor, except that a CPO or ILO cannot know or have reason to know, prior to purchase, that a property is or could be contaminated.
Whether a CERCLA safe harbor is available turns upon transaction structure: a party may be eligible for the safe harbor if it acquires or leases a property directly, but if a party acquires equity interests in the owner or lessee of the property (or in the upstream owners of the same), such equity acquisition would not newly give rise to a CERCLA safe harbor.
Property owners and operators aiming to qualify for liability protections under CERCLA must conduct AAI. In the final AAI rule, EPA notes that although the ASTM standard is not an EPA regulation, “parties seeking liability relief under CERCLA’s landowner liability protections, as well as recipients of brownfields grants for conducting site assessments, will be considered in compliance with the requirements for all appropriate inquiries, if such parties comply with the procedures provided in the ASTM E1527-21”. 87 Fed. Reg. 76,580.
The AAI Rule and ASTM E1527-21 both clearly establish that, to be effective, a report must be completed no more than 180 days prior to the date of acquisition or beginning of a lease term. Both the rule and the standard further provide that a report prepared up to one year in advance of the property transaction may satisfy AAI requirements to the extent the following components of the report have been updated and identified in the report:
- Review of government records
- Searches for recorded environmental cleanup liens
- Site reconnaissance
- The Environmental Professional Declaration (i.e., a signed statement by the Environmental Professional that they are qualified and completed AAI in conformance with the standards set out in 40 CRF part 312)
What is New
The adoption of ASTM E1527-21 and phaseout of ASTM E1527-13 will bring about important changes, but should not significantly alter the process or cause a major shift for practitioners. The new standard is meant to reflect best practices only. Most significantly, ASTM 1527-21 formalizes the following:
- Clarification of requirements for historical research, including per-and polyfluoroalkyl substances (PFAS) diligence within scope
- Clarification of continued viability for Phase I reports
- Expansion of the definitions and requirements associated with reporting data gaps and Recognized Environmental Conditions
In March 2021, EPA published a guide providing details comparing the regulatory requirements of the AAI rule and the ASTM E1527-13 and ASTM E1527-21 process.
Key updates in ASTM E1527-21 include the following:
- Data Gaps: ASTM E1527-21 changes what is defined as a “data gap” and creates a new term “significant data gap,” which is a data gap that raises concerns regarding the Environmental Professional’s ability to render an opinion, the effects of which must be commented on in the ESA’s conclusion.
- Recognized Environmental Conditions: ASTM E1527-21 updates the definition of “Recognized Environmental Condition” (REC) to clarify when the mere “likely” presence of a release must be categorized as a REC.
- Historical Research: ASTM E1527-21 changes the analysis and compilation of historical property information and site reconnaissance. It requires the review of historical aerial photographs, city directories, topographic maps, and Sanborn Maps for both the subject property and any adjacent properties, if likely to be useful.
- Reporting Requirements: ASTM E1527-21 expands the reporting requirements related to site plans and findings and conclusions, and requires that signed declarations from the Environmental Professional include conclusions about the presence of RECs and significant data gaps.
- Continued Viability: ASTM E1527-21 requires that the dates on which each of components were completed be identified in the Phase I report, and that the 180-day or 1-year time period, as applicable, begins with the date on which the first component was completed.
- PFAS: ASTM E1527-21 also treats PFAS differently, as discussed in a previous Latham blog post. The new standard clarifies how Phase Is can address PFAS and other emerging contaminants, but does not create an affirmative requirement that such contaminants be addressed in Phase I reports unless and until EPA designates the specific PFAS at issue a CERCLA hazardous substance.
Effective February 13, 2023, ASTM E1527-21 will be the relevant Phase I ESA standard, although ASTM E1527-13 will continue to satisfy the AAI Rule through February 13, 2024. While many of the practices prescribed by ASTM E1527-21 are already widely used, buyers and sellers should take note to recognize the key differences and implement them going forward to ensure the best chance of obtaining liability protection under CERCLA and state analogues.