PFAS, due diligence and what they mean for potential real estate development

How the presence of the ‘forever chemical’ could affect the property evaluation process
Pfas Cycle

The term “forever chemicals” refers to a group of chemicals that are called “PFAS” or per and polyflouroalkyl substances. They have been the subject of many recent studies that show that they are even more widespread than ever before.

Recently, both federal and state agencies have proposed or enacted legislation that would set action levels in both soil and groundwater for these chemicals. This includes newly revised practice standards for Phase I environmental site assessments by the American Society for Testing and Materials (ASTM), which has included the evaluation for the presence of these chemicals as a “business environmental risk” when conducting Phase I environmental site assessment. As a result, environmental risk evaluation and property valuation during property redevelopment is now even more complicated due to the constantly changing regulatory status of PFAS.

PFAS have been utilized in a variety of products since their discovery in the 1930s by a DuPont chemist as the main ingredient in Teflon. Since then, an increasing amount of materials, including consumer products, now contain it. PFAS is now so prevalent, that it is in found in the blood of most residents of the United States. As we increasingly understand the health effects posed by these chemicals, additional states are taking action to protect their citizens.

Actions taken by states have included requiring warning labels on products; designating PFAS as either a hazardous waste or substance; and establishing action levels in groundwater and soil.

In addition to state actions, the federal government initiated several activities to begin to control or limit the use of PFAS, including listing two of the approximately 7,000 chemicals as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as Superfund.

In 2020, the Environmental Protection Agency expanded the Toxics Release Inventory Control Act (TSCA) to restrict the manufacture, use and import of hundreds of long-chain PFAS.

In response to this growing concern over PFAS in the environment, the ASTM included PFAS in its recently updated standard for Phase I environmental site assessments a “business environmental risk” With that inclusion, environmental consultants are now able to identify properties that may have used, stored or have potentially been impacted with PFAS as concerns for potential property owners or investors.

Considering the number of states that have either numerical standards or activities toward regulating PFAS on some level, developers must be careful when evaluating properties where PFAS may have been used.

Definition, origins and uses

PFAS refers to a group of an estimated 5,000 to 10,000 chemicals that have unique physical characteristics, such as the ability to resist heat, oil, stains, grease and water, lending them to being used in a variety of products.

Some of the more commonly known chemicals in the PFAS family are perfluorooctane sulfonic acid (PFOS) and perfluorooctanoic acid (PFOA). These two chemicals are listed as hazardous substances under CERCLA. PFOS is the main ingredient in Scotchgard, made by the 3M Company.

PFOA is used in the process of making Teflon, which is the brand name of polytetrafluoroethylene (PTFE). Teflon was produced by a DuPont chemist in 1938 by accident. Since then, thousands of chemicals have been developed and utilized in a multitude of products.

The list of products is significant. They range from non-stick coatings, stain- and water-resistant products, and firefighting foam, to architectural resins and protective coatings. The products even include food packaging products, such as pizza boxes and takeout containers.

Recently, manufacturers have started to phase out or reduce the use of PFAS in many of the products.

Regulatory status

Only a handful of states have enacted legislation protecting or limiting consumers from PFAS-containing products. Thirteen states have enacted or have proposed legislation for “food PFAS” in food packaging. Others, like New Hampshire, have established guidelines and notification levels for PFAS in water supplies. Four bills filed in the current New Hampshire legislative session – including one that would have required a seller of real estate to notify the buyer if PFAS were found on the property – were either retained or tabled.

The federal government has yet to establish any formal guidelines for PFAs in drinking water but does have PFOA and PFOS drinking water health advisories in effect. The EPA has restrictions in place under the Toxic Substance Control Act regarding the use, manufacture and import of long-chain PFAS. PFAs also were added to the toxics release Inventory in 2020, requiring companies to report the annual release of these chemicals into the environment. Food and Drug Agency (FDA) has banned three PFAS for use in food packaging materials

ASTM Phase I ESA Standard

The ASTM’s Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process, is widely viewed as the guidance when evaluating property during an acquisition or refinancing. It is also part of the EPA’s all appropriate inquiry rule for using the “innocent landowner defense” under CERCLA.

The standard was originally published in 1997, but was recently updated in November 2021. Prior to that, it had not been updated since 2013. The standard details an approach and methodology to evaluate the potential environmental liability associated with a specific property as part of an acquisition.

The recently updated standard has much of the same content as the older version did, but provides some much needed clarification.

For example, the update now provides definition to some terms that have had environmental professionals guessing. This includes the term “likely” as in the likely presence of a hazardous substance. Other definitions were also clarified such as the terms CREC, or controlled recognized environmental condition, HREC, or historical recognized environmental condition, and REC, recognized environmental condition.

One important clarification on emerging contaminants offers some clarity to the topic, as many states have already adopted legislation regarding classification of one or more PFAS as hazardous substances.

The standard states that it can be included as an out-of-scope item if the user requests that it be included, but until it is listed as a CERCLA hazardous substance by the EPA, it does not need to be included in the scope of the Phase I environmental site assessment. It should be noted that this legislation has already been mentioned by the agency and some believe that this is inevitable.

Given that there are a number of states that have proposed legislation regarding regulation of PFAS or even banning it altogether, it is important to understand the current regulatory status of PFAS legislation in the state where the property is located.

If a site happens to be located in a state that has yet to enact legislation, the evaluation of PFAS can still be added to the scope, but for portfolios that include multiple states, how the assessment of potential PFAS usage or releases is reported is complicated by the individual state and whether or not it is actually regulated by that state.

Development of potentially PFAS sites

As they say, timing is everything. If one were to conduct a Phase I environmental site assessment, including PFAS as a “non-scope” item, and the environmental consultant identifies a possible use of PFAS, it would be interpreted as a business environmental risk. If the property was assessed six months later, and during that time, the EPA or the state lists one or more PFAS as a hazardous substance, the same condition could be interpreted as a recognized environmental condition by the same environmental consultant. If you were developing the site, this could have an impact on financing, potential tenants, or even development costs.

The current regulatory situation is very volatile, and more states are developing legislation in response to the public concern for their health and that of the environment. This adds to the liability and risk of performing Phase I environmental site assessments on sites where PFAS compounds may have been used. The environmental consultant may need to develop policies to deal with PFAS-related risks for all Phase I environmental site assessments they perform.

Currently, if you live in a state that has not yet enacted PFAS legislation, if your consultant identifies the presence of PFAS, it might not be considered to be “contaminated” by that state agency and therefore closure would not be required. But if that same site is located in a state that has established action levels, regulatory closure could then be required.

Lenders have an even more complicated position. Recent announcements by the EPA to adopt the updated ASTM standard in the “all appropriate inquiries” rule may give them some level of security, but evaluating environmental liability on properties that they lend money has just become more complicated.

Some states have adopted legislation, but the EPA has yet to address any formal drinking water standard for PFAS, while many states already have. The ever-changing regulatory landscape for PFAS has created an environmental quagmire that should continue until formal legislation by the USEPA is established.

Director of Environmental Engineering

David L. Sawicki is vice president of environmental for Chicago-based Milhouse Engineering and Construction Inc.

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