New Phase I Environmental Assessment Standards
On August 15, 2013, the U.S. Environmental Protection Agency published a proposed Amendment to Standards and Practices for All Appropriate Inquiries that would approve a new standard by which Phase I Environmental Site Assessments may be conducted. In the process of acquiring real property, prospective buyers (or other potential owners or operators, though this article will focus on acquisition transactions) need to consider any potential liabilities that may arise in connection with existing environmental conditions on such real property, including potential liability under the federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”). CERCLA imposes strict liability for cleanup and related response costs on “owners and operators” of properties and facilities giving rise to the contamination.
An “owner or operator” can establish a defense against a CERCLA enforcement action if it can establish one of several “all appropriate inquiries” defenses. Generally, these defenses protect purchasers of land that were not responsible for the contamination, but purchased contaminated land after conducting sufficient due diligence—generally a Phase I Environmental Site Assessment (ESA) prepared by a qualified environmental consultant. A Phase I ESA is an evaluation by an environmental professional of the characteristics of real property related to potential environmental hazards.
Prior to this proposed amendment to meet the appropriate inquiries requirement, a Phase I ESA must comply to one of two standards published by ASTM International (formerly American Society for Testing and Materials): ASTM E1527-05 (most common) or ASTM E2247-08 (forestland or rural property). The proposed amendment provides a third alternative, ASTM E1527-13. The new standard varies from ASTM E1527-05 in several significant ways.
Perhaps most significantly, E1527-13 includes a new reporting category called Controlled Recognized Environmental Conditions. Previously, E1527-05 required past releases to be categorized as Recognized Environmental Conditions (present environmental risks), Historical Recognized Environmental Conditions (past releases that do not pose ongoing concerns) or de minimis conditions (matters that do not amount to recognized environmental conditions). The new category should bring more attention to past releases that were not entirely cleaned up and for which the owner or operator may have ongoing obligations to manage, or that may limit current or future uses of the property.
ASTM E1527-13 also includes a requirement that the potential for vapor intrusion must be evaluated by the environmental professional. Under the existing standard, it was unclear whether vapor intrusion was considered a release that was subject to evaluation by the environmental professional, or if it was matter of indoor air quality outside of the scope of a Phase I ESA. The new standard clarifies that vapor intrusion must be considered in the same or similar manner as groundwater migration.
Furthermore, the new standard will require a Phase I ESA to include a records review of all adjoining properties. The current standards only require a search of the subject property. While matters concerning adjoining properties often appeared in records searches of the subject property, the environmental professional did not necessarily search available records on such adjoining properties (potentially allowing groundwater migration issues to fall through the cracks). The new standard allows an environmental professional to forego a records review of adjoining properties if the professional opines the search is unwarranted, but justification of such decision is required in the report.
Ultimately, the new standard provides additional information to the user of the Phase I ESA. However, buyers and sellers will need to negotiate the standard by which they will conduct any environmental due diligence. Assessments conducted under the new standard will provide additional information for the buyer that may not be included under assessments using the existing standard, but such information will likely lengthen the time and increase the costs of environmental due diligence.
The proposed amendment (and new standard adopted thereby) will become effective on November 13, 2013, unless the EPA publishes a withdrawal in the Federal Register informing the public that the amendment will not take effect. As of the date of this article, the EPA has not withdrawn the proposed amendment.