The United States Environmental Protection Agency (“EPA”) recently approved a new American Society for Testing & Materials (“ASTM”) Standard Practice for Phase I Environmental Site Assessments Process (“Phase I ESA”), which took effect on February 13, 2023. Although the existing standard, ASTM E1527-13, may still be used, it will be phased out by February 13, 2024. The new standard, ASTM E1527-21, among other items, broadens the scope of what is considered a Recognized Environmental Condition (“REC”) and provides an option to investigate the presence of emerging contaminants, including per- and polyfluoroalkyl substances (“PFAS”), at a subject property. The changes will impact how interested parties perform environmental due diligence to assess and manage environmental risks in commercial transactions, while shining a bright light on environmental risk.
Phase I ESAs are a crucial tool for identifying environmental risks in commercial transactions. The prior standard, ASTM E1527-13, has been in use since 2013, and one of its primary purposes is to identify RECs that could pose an environmental risk and impact the value of a subject property. Under the previous standard, the definition of a REC included both known releases of hazardous substances and the presence of hazardous substances under conditions that pose a “material threat” of future releases.
Key Changes in ASTM E1527-21:
As alluded to above, the new standard, ASTM E1527-21, expands the scope of what is considered a REC by including the phrases “likely presence” of hazardous substances due to a “likely release.” The concept of “likely presence” is subjective and relies on the discretion of the environmental professional conducting the Phase I ESA. This broad definition, including the term “likely” may result in more discretion for consultants to include conditions as RECs but less discretion to exclude conditions from consideration as RECs, particularly where there is some evidence for their presence. As such, reasonable minds may disagree on such conclusions.
Another significant change is the provision for an optional emerging contaminants review, which includes a review of PFAS. The inclusion of PFAS as an emerging contaminant is important, considering the EPA’s proposed rule to add several PFAS compounds as hazardous substances under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”). Conducting an optional PFAS assessment will be an important tool for specific site uses that may have contributed to a PFAS release, or where a PFAS release is likely to have occurred in the past.
These changes could disrupt the commercial real estate industry by impacting deal timing or changing environmental risk attitudes by transacting parties, lenders, insurers, etc.
The revised ASTM Standard E1527-21, represents a significant change in the manner in which environmental risk may be identified and managed in commercial transactions. The expanded definition of RECs and the optional review of emerging contaminants will require additional expertise and resources from all stakeholders involved. Understanding these changes and their implications is critical for successful and timely real estate, corporate and financing transactions. However, interested parties armed with competent and experienced consultants and attorneys should be able to effectively and efficiently define the scope of the Phase I ESA and other environmental due diligence efforts to successfully mitigate and/or allocate environmental risk.