Assessing the new Phase I enviro site assessment standard

Lynn Preston

The American Society for Testing and Materials recently updated its standard for conducting Phase I Environmental Site Assessments, and it specifies what constitutes “good commercial and customary practice” for conducting assessments of commercial real estate properties under the Comprehensive Environmental Response, Compensation & Liability Act (CERCLA), the federal Superfund law.

The primary reason for performing most Phase I assessments is to allow a purchaser of real property or a lender to qualify for certain defenses to liability under CERCLA. To qualify for these defenses, the landowner or lender must ensure that the assessment follows the “all appropriate inquiries” (AAI) process, conducted by a qualified professional, that meets the ASTM Phase I standard.

Once approved by the U.S. Environmental Protection Agency and adopted into the federal regulations, the new standard will be considered compliant with the AAI regulations and will replace the current ASTM standard, E1527-13, or the 2013 standard. To ensure the upcoming AAI requirements are met, those performing and using Phase I assessments will need to review and understand the new standard. Some of these important changes include:

• Recognized Environmental Condition: RECs are often considered the most important part of the Phase I process, yet subjective readings of the definition can lead to inconsistences in determining what is or is not a REC. Likely as a result of these inconsistencies, the ASTM standards committee has also added a new appendix to the new standard, Appendix X4, which attempts to provide further clarification, via examples, for what does and does not constitute a REC.
• Historical REC: The new standard requires an evaluation of site conditions previously categorized as historical Recognized Environmental Condition, or HREC (a condition where releases, at the time of the assessment, have been addressed to the satisfaction of the applicable regulatory authority and the property is not subject to any use or other restrictions relating to the HREC condition).

Under the new standard, the qualified professional must re-evaluate whether new conditions are present or new information is identified during the Phase I, such as regulatory changes or a new contamination migration pathway, to determine whether the condition in question should remain an HREC or be re-classified as a REC – the professional cannot simply rely on HREC determinations rendered in earlier reports.

• Viability (shelf-life): Like the 2103 standard, the new standard still provides that the Phase I is valid for 180 days following completion. However, the new standard clarifies when the viability clock starts ticking and requires specific component timeframes be added to the report.

Specifically, the new standard requires that the Phase I contain the dates on which interviews, review of government records, visual inspections and declaration by environmental professional were conducted or made. Also, like the 2013 standard, the new standard provides that the Phase I can be relied on as long as it was completed within one year of the date of property acquisition or transfer, provided the date-specific report components and searches for environmental cleanup liens were updated prior to and within 180 days of the date of acquisition or transfer.

Significantly, the new standard provides that the date of earliest completion of one of the four date-specific report components is the trigger for evaluating compliance with the 180-day requirements and one-year shelf life, and not the date of the Phase I report.

Historical sources

No longer discretionary, the following sources must be used to determine previous uses and occupancies of the subject property and adjoining properties, if, based on the judgment of the environmental professional, they are reasonably ascertainable, likely to be useful, and applicable to the subject property:

• Aerial photographs
• Fire insurance maps
• Local street directories
• Historical topographic maps

Also, these same sources must be reviewed for adjoining properties where available and likely useful in determining whether past uses of the adjoining properties have led to RECs on the subject property.

Emerging contaminants

The new standard makes clear that emerging contaminants, such as per- and polyfluoroalkyl substances (PFAS), are considered “non-scope considerations” (i.e., conditions that may be added by the user, but are outside the scope of the Phase I), if and until they are regulated under Superfund. Since PFAS are not currently federally regulated “hazardous substances” under Superfund, they are considered environmental issues or conditions outside the scope of the ASTM Phase I. Be aware, however, that certain states may have adopted specific regulations relating to PFAS and/or other emerging contaminants that, in order to take advantage of state specific liability protections, may require assessment beyond the scope of the ASTM Phase 1.

Takeaways

Changes are coming to the regulatory standard for performing Phase I assessments, so make sure you review them.

Those involved in commercial real estate transactions, including lenders, wanting protections afforded by applicable federal and state defenses to landowner liability, should consider whether these updates to the standard will require changes to existing transaction processes and consultant scopes of work for Phase I reports.

So make sure your Phase I complies with the updated “shelf-life” requirements, and remember that PFAS issues are complicated – there are no “safe harbors,” at least not yet.

Lynn Preston, a shareholder and chair of the Environmental and Energy Group at Sheehan Phinney, can contacted at lpreston@sheehan.com.