United States: U.S. Environmental Protection Agency Approves New Standard For Phase I Environmental Site Assessments

In mid-March, the U.S. Environmental Protection Agency (EPA) issued a direct final rule approving ASTM International (ASTM) Standard E1527-21 as an additional standard meeting the all appropriate inquiry (AAI) component for potential liability protections under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). As a direct final rule, EPA's approval of the new standard will take effect on May 13, 2022, unless the agency received adverse comments by April 13, 2022. In the unlikely event that adverse comments were received, the final rule would be withdrawn so the comments can be addressed. For the time being, EPA's final rule approving the new standard does not eliminate the current E1527-13 as an approved approach for conducting AAI, but instead adds ASTM E1527-21 as an additional tool. However, over time, it is likely that EPA will rescind E1527-13 as E1527-21, with its heightened focus on Phase I Environmental Site Assessment (ESA) due diligence inquiries, comes into broader use.

ASTM E1527-21 outlines requirements for environmental professionals performing Phase I ESAs, typically in connection with pending real estate transactions or commercial leases. Those familiar with the previous standard will observe that E1527-21 looks similar to the previous standard but clarifies and expands on certain elements. Among the most significant differences between the two standards are the following:

• New Definition of Recognized Environmental Condition (REC). Conclusions of a Phase I ESA report rely on the judgment of the environmental professional, meaning different consultants can, and do, arrive at different classifications after evaluating the same property. The revised definition of a REC seemingly directs the consultant to consider risk factors that the consultant could have ignored under the previous standard. It will be worth watching whether this change results in more conservative conclusions (more RECs).
• Under the previous E1527-13 standard, a REC was defined as the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property: (1) due to release to the environment; (2) under conditions indicative of a release to the environment; or (3) under conditions that pose a material threat of a future release to the environment.
• Under the new E1527-21 standard, a REC means (1) the presence of hazardous substances or petroleum due to a release to the environment; (2) the likely presence of hazardous substances or petroleum products due to a likely release to the environment; or (3) the presence of hazardous substances or petroleum products under conditions that pose a material threat of a future release to the environment. Further, the new standard provides clarifying discussion notes and examples to assist the environmental professional in applying the definition. Taken together, the new definition and required interpretations direct a consultant to rely on the environmental professional's experience regarding the likelihood of certain conditions resulting in releases, such as the long term presence of activities commonly associated with RECs, instead of discounting the risks associated with such activities based on the lack of current "indications of a release."
• Support for Controlled Recognized Environmental Condition (CREC). ASTM E1527-21 requires the Phase I report to set forth the environmental professional's basis for identified CRECs, along with copies of the underlying regulatory documentation supporting such conclusion. Considering the concerns of a prospective purchaser, this is a positive change since it will provide the user with the source documents for any continuing obligations required to ensure protectiveness of an applicable remedy.
• Significant Data Gap Requirements. While both versions of the standard require an environmental professional to identify significant data gaps, the prior E1527-13 version did not provide a definition of what rendered a data gap "significant." The revised E1527-21 version now defines a significant data gap as one that "affects the ability of the environmental professional to identify a recognized environmental condition." The new definition standardizes what was previously followed by most in practice. The new standard mandates additional documentation requirements for significant data gaps.
• List of Critical Viability Dates. Under the new standard, Phase I ESA reports will now identify dates on which the five critical elements of the investigation were performed. This includes the interviews, searches for recorded environmental liens, records review, visual inspection, and environmental declaration. This will allow a reader to easily calculate report viability and shelf life.
• Shelf Life. The new standard indicates that the report is valid for 180 days, calculated from the date the first of these critical tasks is performed. A Phase I report may be extended to one year if each of the five specific components have been updated.
• Standard Historical Sources. Several historical sources are now clearly classified as "standard historical sources" and must be reviewed and discussed in the Phase I ESA report, including aerial photographs, fire insurance maps, local street directories, topographic maps, building department records, interviews, property tax files, and zoning/land use records. If standard historical sources are not available or otherwise not reviewed, the environmental professional must include an explanation for the omission.
• Emerging Contaminants. We have written before on the topic of new contaminants of concern. While many states have adopted regulatory standards for per-and polyfluoroalkyl substances (known as PFAS), EPA has not yet (though it is in the process of doing so). New York State has perhaps the most stringent PFAS standards in the country. Because PFAS is not yet listed as a hazardous substance under CERCLA, consultants have not been required to include PFAS as a scope item in compiling a Phase I report. However, the new standard clarifies that emerging contaminants will become subject to Phase I ESA review once they are classified as hazardous substances under CERCLA. Until such time, parties to a transaction will likely be discussing the risks and benefits of including certain emerging contaminants under the scope of the Phase I ESA with their environmental professional and environmental counsel.

Because the new standard extends the scope and depth of review of existing sources and topics, an ESA conducted under E1527-21 may become more costly than under the previous standard.

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