I am excited to be presenting a fast paced and fun one hour virtual program, “Environmental Social Governance (ESG) an Emergent and Fast Growing Area of the Law” for the Maryland State Bar Association, and Not just for lawyers, on December 14, 2021 at noon. Register today for the live virtual program.
On November 1, ASTM International revised its Phase l Environmental Site Assessment standard.
Phase l Environmental Site Assessment Standard E1527-13 sunset eight years from its approval on November 6, 2013 and the new E1527-21 was as of last week published and now available for use, but ..
For the unenlightened, this is hugely significant because a Phase l Environmental Site Assessment is conducted in the vast majority of the 5.6 million commercial real estate transactions in the United States each year, and also because Phase l reports are used for a wide variety of other purposes, including as ESG data for a company to demonstrate third party verified compliance with the E in ESG, environmental laws, and also to qualify for credits under the LEED and Green Globes green building rating systems.”
The stated purpose of the ASTM Standard E1527-21 Phase I Environmental Site Assessment process is “to define good commercial and customary practice in the United States of America for conducting an environmental site assessment of a parcel of commercial real estate with respect to the range of contaminants within the scope of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) (42 U.S.C. §9601) and petroleum products.”
But importantly, the new ASTM E1527-21 is Not yet recognized by the U.S. Environmental Protection Agency as satisfying its All Appropriate Inquiry rule to obtain protections from liability under CERCLA, the federal Superfund law, something that is expected to happen by rulemaking at some point in 2022. Some consultants are already advertising they will use the new standard, but such is premature because the new standard does not currently meet the requirements to obtain protections from liability under CERCLA, and that will only happen in the future after EPA approval. Just weeks ago the federal appeals court in Von Duprin LLC v. Major Holdings, LLC, held a party could not assert a CERCLA defense because its Phase l report did not comply with the EPA rule.
ASTM first published a standard for Phase I Environmental Site Assessments in 1993, with revisions in 1994, 1997, 2000, 2005, and 2013, so that the standard has again been revised is not surprising, but some of the changes warrant heightened scrutiny.
Among the changes, the new ASTM E1527-21 includes:
What is characterized as one of several “terminology revisions,” the change to the definition of Recognized Environmental Condition (REC), is a modification to ‘the three scariest words in real estate’ and may going forward negatively impact the value of hundreds of millions of dollars of real estate each year. Guidance is provided in the Standard that, for example, the past closure of a leaking underground storage tank may not constitute an Historical Recognized Environmental Condition (HREC) unless the environmental professional conducting the Phase l has evaluated the data associated with that closed tank to be sure that the sampling data meets current regulatory standards for unrestricted use and whether there is an open vapor exposure pathway. Some believe this tying of the consideration to “current” standards, as opposed to the regulator determination at the time the tank was closed, creates a Faustian bargain for the environmental professional, and will greatly limit the supremely valuable designation of HRECS.
I blogged some months ago, PFAS in a Phase l Environmental Site Assessment, and concluded, as does this new Standard, that because PFAS is not a CERCLA nor a RCRA listed hazardous substance, it should not be identified in a Phase l report. It is a non-scope matter. This revised Standard adds PFAS and other emerging contaminants to the list of non-scope matters that a user may want to evaluate as a business risk, as is done from time to time with asbestos and mold, including as may be impacted by a particular state law.
There has also been a terminology revision of what is a Controlled Recognized Environmental Condition (a CREC). There is no doubt that the uninitiated have been confused that a CREC is a subset of a REC, and stray close to the category of HRECs, which are not RECs. CRECs arise from a past release of a hazardous substance that has been addressed to the satisfaction of regulators, but carry some implementation of controls, like a drinking water restriction. This new text is supported by a new appendix that provides guidance on the REC/HERC/CERC decision process, including a flow chart, and examples of each.
Arguably, the change to the Standard that will substantively impact the most properties is the expansion of mandated historical research into the uses of adjoining properties. Liability from old dry cleaners in retail sites that are beyond the boundaries of the “subject property” (.. a term also now expressly defined) drove the ASTM committee to broaden the mandatory scope. While many consultants already considered prior retail uses, including on adjoining sites, adding certainty will result in consistency, but also increase the costs for a 2021 version Phase I Environmental Site Assessment.
The change to the shelf life of a Phase l report is of import when currently a report is presumed current when signed and dated as completed and more than 180 days prior to acquisition of a property which may be updated to be valid for up to a year, but what is proposed is 180 days from the day work commences on the Phase l even if that is simply a request for governmental records on a property. It is not clear how this back dating of a dated report is advantageous (to anyone other than environmental professionals who will now have to prepare more reports)?
The number one take away from the November 1 approval of the new ASTM E1527-21 is that it is Not yet recognized by EPA and as such does not satisfy EPA’s All Appropriate Inquiry rule to obtain protections from liability under CERCLA, nor is EPA approval expected anytime soon; so it is premature to use the new standard in commercial real estate transactions, although it is likely a good idea for purchasers of land, landlords and tenants, their lenders, lawyers and others to become familiar with the not yet efficacious standard.
All of that said the new ASTM E1527-21, as well as any Phase I Environmental Site Assessment report prepared under a prior standard when the company acquired real estate, are today, good ESG data for a company to demonstrate third party verified compliance with the E in ESG. Because many companies already have in their files a report prepared in advance of their acquisition of real estate, this ESG data is not only readily available but at nearly no cost. And those may be good for a host of other purposes, including to qualify for credits under the LEED and Green Globes green building rating systems.
A year ago August, I blogged, I just read my 1000th Phase l Environmental Site Assessment this year, and we readily passed that mark this year, so we will not only be monitoring EPA review and approval of the revisions before adopting new ASTM E1527-21 for our own purposes, and report on any EPA regulatory action it a future blog post.