On March 14, 2022, EPA issued a proposed and direct final rule which amends “all appropriate inquiry (AAI)” to include ASTM International’s E1527-21 “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process.” The 2021 standard contains updates, modifications, and clarifications intended to ensure a more comprehensive Phase I environmental site assessment. This leads to more transparency and a greater likelihood that a court would uphold that an AAI that rigorously followed the requirements in the 2021 standard, qualifies for a CERCLA bona fide prospective purchase defense. Although certain parties may be willing to consider using the 2013 standard to satisfy the requirements in the short term, as the saying goes buyer beware.
The Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and state-based equivalents impose strict, joint and several liability on current and past owners and operators of real property for cleaning up hazardous substances found at the subject property. Any potentially responsible party (“PRP”) may be held liable for the entire cleanup of the site even if a party is only partially responsible. Potential liabilities include government cleanup costs, damages to natural resources, the cost of certain health assessments, and injunctive relief. In 2002, Congress amended CERCLA to add liability protections for PRPs who meet the criteria of a bona fide prospective purchaser (“BFPP”) (including a potential lessee), innocent landowner, or contiguous property owner (collectively “landowner liability protections” or “LLPs”). To qualify for these defenses under CERCLA, a party must demonstrate they conducted AAI ), commonly referred to as Phase I Environmental Site Assessments (“Phase I” or “Phase I ESA”), into the previous ownership and use of the land. As confirmed by a recent Seventh Circuit decision, environmental professionals (“EPs”) must rigorously follow the AAI requirements, set forth in 40 CFR Part 312, to qualify for LLPs under CERCLA. See Von Duprin LLC v. Major Holdings, LLC, No. 20-1711 (7th Cir. 2021) (On appeal, the Seventh Circuit affirmed the district court decision that to qualify for the BFPP defense a party needs to strictly comply with “all appropriate inquires” requirements in CERCLA’s regulations and holding that the Phase I fell short of those requirements in multiple technical regards.) (emphasis added).
EPA RECOGNIZES A NEW STANDARD, ASTM E1527-21, FOR PHASE I ESAs
The final rule incorporates the ASTM E1527-21 (the “2021 standard”), without replacing the previously adopted standard, ASTM E1527-13 (the “2013 standard”). The proposed and direct final rule was withdrawn because it received adverse comments allowing both E1527-21 and E1527-13 use to comply with the AAI rule. A comparable situation occurred in 2013 during the last transition from the ASTM E1527-05 standard to the 2013 standard. EPA issued a direct final rule that provided parties the option to use the 2013 standard or the then existing standard ASTM E1527-05. The EPA received adverse comments in support of the 2013 standard and raising concerns regarding the use of two standards simultaneously. In response, the EPA withdrew the direct final rule and amended it by removing the ASTM E1527-05 standard and replacing it with the 2013 standard.
The adverse comments to ASTM E1527-21 were similar to the adverse comments when ASTM E1527-13 was proposed. USEPA is expected to endorse the use of ASTM E1527-21 and replace ASTM 1527-13.
IMPORTANT CHANGES BETWEEN THE 2021 STANDARD AND ASTM E1527-13
The following is a list of significant changes in the 2021 standard:
CLARIFIED DEFINITIONS AND TERMS
Consistent Use of the Term Subject Property: To promote clarity, the 2021 standard suggests the EP use term “subject property” throughout the Phase when referring to the property that is the subject of the report.
“Recognized Environmental Condition” (“REC”): The goal of a Phase I is to identify RECs, controlled RECs (CRECs), and historic RECs (HRECs) associated with the subject property. The 2021 standard defines recognized environmental condition to mean ( 1) the presence of hazardous substances or petroleum products in, on, or at the subject property due to a release to the environment; (2) the likely presence of hazardous substances or petroleum products in, on, or at the subject property due to a release or likely release to the environment; or ( 3) the presence of hazardous substances or petroleum products in, on, or at the subject property under conditions that pose a material threat of a future release to the environment. A de minimis condition is not a recognized environmental condition.
CREC: The 2021 standard clarifies a CREC is a REC affecting the subject property that has been addressed to the satisfaction of the applicable regulatory authority or authorities with hazardous substances or petroleum products allowed to remain in place subject to implementation of required controls. EPs shall review “reasonably ascertainable” information, such as approvals issued by the regulatory authorities, or for self-directed actions, documentation and relevant data that satisfy risk-based criteria established by the regulatory authority.
HREC: HREC is defined in the 2021 standard as “a previous release of hazardous substances or petroleum products affecting the subject property that has been addressed to the satisfaction of the applicable regulatory authority or authorities and meeting unrestricted use criteria established by the applicable regulatory authority or authorities, without subjecting the property to any controls (for example activity and use limitations, or other property use limitations).”
Clarification for Classifying a REC, HREC, and CREC: The 2021 Standard includes an Appendix that contains a REC Logic flow chart (Appendix X 4) for making determinations whether a subject property condition constitutes a REC, HREC or a CREC. The Appendix includes a process to follow with examples of the different RECs. While this will not remove all uncertainty in making decisions about RECs, this should create more consistency among consultants in making such determinations.
Significant Data Gap: The 2013 standard required the EP to identify “significant data gaps” in the Phase I but did not provide guidance on what “significant” means. The 2021 Standard clarifies that a “data gap” may result from incompleteness in any activities required under the practice, including site reconnaissance and interviews.
SHELF LIFE OF AN E1527-21 PHASE I REPORT BEGINS WITH THE DATE UPON WHICH THE FIRST COMPONENT WAS COMPLETED
The 2021 standard provides that a Phase I ESA must be completed no more than 180 days prior to the date of acquisition to remain viable or up to one year if five specific components of the Phase I ESA have been updated, specifically the (i) interviews; (ii) searches for recorded environmental cleanup liens; (iii) review of government records; (iv) site reconnaissance of the subject property; and (v) the EP Declaration. Further, the 2021 standard requires that the Phase I identify the dates on which each component was completed and further provides that the 180-day or one-year duration commences on the date when the first of these components were completed.
INVESTIGATION OF HISTORICAL SOURCES
Retail, Industrial, and Manufacturing Use Generally Requires a Review of Standard Historical Sources: If the general type of use is retail, industrial, or manufacturing, then standard historical resources shall be reviewed if they are likely to identify a more specific use and are reasonable ascertainable.
Four Standard Historical Sources Must be Reviewed or Explained in the Phase I: The 2021 standard requires that (1) aerial photographs, (2) fire insurance maps, (3) local street directories, and (4) historical topographic maps must be reviewed, or the EP shall include in the report why the review was not conducted.
This Incudes Adjoining Properties: If these four standard historical sources that must be reviewed were researched for the subject property, provide coverage of one or more adjoining properties, and are likely to be useful in satisfying the historical research section object, then these sources should also be reviewed for the adjoining properties.
Interviews Are Now Included as a Standard Historical Source: The 2013 standard required that up to eight standard historical sources should be reviewed as the EP believed were necessary to meet the objectives of a Phase I. The 2021 standard adds “interviews” to standard historical sources.
EP’s Should Consider Changes to Property Identification When Researching Historical Uses of the Subject Property: The 2021 standard clarifies that properties may be different in use, size, configuration, or address than in the past and the EP should consider these factors when conducting their research. For example, a current adjoining property may be located beyond a public thoroughfare; however, before the installation of the thoroughfare, a historically adjoining property with uses of concern may have been in the location of the current thoroughfare.
Retail Property Should Also Include a Review of Standard Historical Sources: In the 2013 standard, if the subject property was industrial or manufacturing, then additional standard historical sources required review if they were likely to identify a more specific use and are “reasonably ascertainable” by the EP. The 2021 standard adds retail use. For example, past dry-cleaning may be in a retail zone, but dry cleaning has been found to cause contamination. Identifying the more specific use such as “past dry cleaning” is more helpful in fulfilling the historical research objective than simply stating “retail.”
The 2021 standard clarified that the Phase I should describe which of the specific features, activities, uses, and conditions both were and were not present at the subject property.
INCLUDING EMERGING CONTAMINANTS AS A NON-SCOPE CONSIDERATION
The 2021 standard acknowledges that certain emerging contaminants of interest are not yet recognized by CERCLA as hazardous substances and do not need to be included in a Phase I. However, at the request of the user, emerging contaminants may be included in a Phase I as “Non-Scope Consideration.” Notably, the 2021 standard includes PFAS (per- and polyfluoroalkyl substances) as an emerging contaminant. This is of particular importance because the EPA has submitted a proposed rule to designate of PFAS as hazardous substances under CERCLA. If the EPA finalizes a rule designating PFAS as a hazardous substance, evaluation of PFAS will become mandatory in a Phase I. As new regulations develop, it would be wise to include PFAS chemicals as a non-scope consideration in a Phase I when PFAS use on a property is suspected.
NOTABLE ADDITIONS TO THE PHASE I
Notable additions to the Phase I include:
- A site plan and photographs, as defined in Section 12.3, Contents of the Report;
- The identification of significant data gaps in the Findings of the report per Section 12.5.1, Significant Data Gaps; and
- All recognized environmental conditions, controlled recognized environmental conditions, and significant data gaps listed in the Conclusions of the report per Section 12.7, Conclusions.
In its direct final rule, EPA references parties that may want to make use of the 2021 standard to qualify for LLPs. Parties may wish to consider PFAS during due diligence activities now, even before any final designation, depending on the site’s prior use, surrounding area, and future intended use.