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 that includes the All Approval Inquiry (AAI) component for potential liability protection under the Complies with Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). As a direct final rule, EPA approval of the new standard will be effective May 13, 2022, provided the agency has received no adverse comments by April 13, 2022. In the unlikely event that negative comments are received, the final rule would be withdrawn and the comments can be addressed. For now, the EPA’s final rule approving the new standard does not eliminate the current E1527-13 as the approved approach for conducting AAI, but instead adds ASTM E1527-21 as an additional tool. However, over time it is likely that the EPA will repeal E1527-13 as E1527-21 finds broader application with its increased focus on Phase I Environmental Impact Assessment (ESA) due diligence investigations.
ASTM E1527-21 outlines the requirements for environmental professionals conducting Phase I ESAs, typically in connection with pending real estate transactions or commercial leases. Those familiar with the previous standard will note that E1527-21 looks similar to the previous standard but clarifies and expands on certain elements. The main differences between the two standards include the following:
- New definition of a recognized environmental condition (REC). The conclusions of a Phase I ESA report are based on the judgment of the environmental professional, which means that different consultants can and do arrive at different classifications after evaluating the same property. The revised definition of an REC appears to instruct the consultant to consider risk factors that the consultant could have ignored under the previous standard. It will be worth watching if this change leads to more conservative conclusions (more RECs).
- Under the previous standard E1527-13, a REC was defined as the presence or likely presence of hazardous substances or petroleum products in, on or near a property: (1) due to environmental release; (2) under conditions suggestive of environmental release; or (3) under conditions that present a significant hazard of future release to the environment.
- According to the new E1527-21 standard, a REC means (1) the presence of hazardous substances or petroleum due to an environmental release; (2) the likely presence of hazardous substances or petroleum products due to likely environmental release; or (3) the presence of hazardous substances or petroleum products under conditions that present a significant risk of future release into the environment. In addition, the new standard includes explanatory discussion notes and examples to help environmental professionals apply the definition. Taken together, the new definition and the required interpretations direct a consultant to rely on the environmental professional’s experience regarding the likelihood of certain conditions leading to releases, such as: B. the long-term existence of activities commonly associated with RECs, rather than ignoring the risks associated with activities due to a lack of recent “evidence of release”.
- Support for Controlled Recognized Environmental Conditions (CREC). ASTM E1527-21 requires that the Phase I report set out the environmental professional’s basis for identified CRECs along with copies of the underlying regulatory documentation supporting such a conclusion. In light of a potential buyer’s concerns, this is a positive change as it provides the user with the source documents for any ongoing obligations needed to ensure the protective effect of any applicable remedy.
- Significant data gap requirements. While both versions of the standard require an environmental professional to identify significant data gaps, the previous version, E1527-13, did not define what makes a data gap “significant”. The revised version E1527-21 now defines a significant data gap as one that “impacts the environmental professional’s ability to identify an accepted environmental condition”. The new definition unifies what has hitherto been followed by most in practice. The new standard prescribes additional documentation requirements for significant data gaps.
- List of critical viability data. Under the new standard, Phase I ESA reports will now report dates on which the five critical elements of the investigation were performed. This includes the interviews, search for recorded environmental liens, review of records, visual inspection and environmental statement. This allows a reader to easily calculate the viability and durability of the report.
- Durability. The new standard specifies that the report is valid for 180 days from the date the first of these critical tasks is performed. A Phase I report can be extended to one year if each of the five specific components has 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, topographical maps, building authority records, interviews, property tax records, and zoning/land use records . If no standard historical sources are available or otherwise not verified, the environmental professional must include an explanation for the omission.
- emerging pollutants. We have previously written on the subject of New Pollutants of Concern. While many states have adopted regulatory standards for per- and polyfluoroalkyl substances (known as PFAS), the EPA has not yet (although 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 were not required to include PFAS as a scope item when preparing a Phase I report. However, the new standard clarifies that emerging contaminants will become subject to ESA’s Phase I review once they are classified as hazardous under CERCLA. By that time, the parties to a transaction are likely to discuss with their environmental professional and advisor the risks and benefits of including certain emerging pollutants within the scope of the Phase I ESA.
Because the new standard expands the scope and depth of review of existing sources and topics, an ESA conducted under E1527-21 may be more expensive than under the previous standard.