Key Issues of the New Phase I Environmental Site Assessment Standard

Since 1993, Phase I Environmental Site Assessments (PIEAs) have been a part of environmental due diligence for most commercial and industrial real property transactions in the United States. These reports provide an inexpensive, standardized environmental snapshot of the property being evaluated. These reports are usually requested by potential purchasers and lessees in order to identify important and practical considerations about how real property might use and be managed.

ASTM International (ASTM), which created the standard for Phase I assessments. The standard is reexamined every eight years. Not surprisingly, each revision seems more complicated than the one before. The ASTM has adopted a new standard in November 2021.

Here are six key points regarding the new Phase I Environmental Site Assessment standard.

1. EPA Approval Pending.

The U.S. Environmental Protection Agency (EPA), has not yet approved E1527-21 as it does not meet the federal responsibility protections. E1527-21 is expected to be approved by EPA later in the year. This is due to EPA’s participation in the ASTM committee meetings which led to the standard being enacted. However, no formal approval has been given. Phase I ESAs should be prepared in accordance either with E1527-13-13 or E1527-21. This interim period will allow users to satisfy the all appropriate inquiries requirement to establish liability protections for landowners under CERCLA. Dualcompliance is possible since the new standard adds on to the older one, making compliance with the earlier standard almost automatic.

2. New RECkoning.

Recognized environmental conditions are often overlooked in Phase I assessments. This is why it is important to identify them. We want to stress here that Phase I assessments often identify non-recognized environmental conditions that are not RECs. Users of the reports should be aware of these. RECs do not always represent the only important issues in Phase Is. The revised definition of RECs in the standard gives an environmental consultant more flexibility to identify when a REC is present due to the probable but not certain presence a release or contamination. The new REC definition provides the following discussion about the meaning of likely. It is anything that can be expected or believed to be true by a reasonable observer based either on the logic and/or experiences of the environmental professional and/or the evidence available as stated in this report. The definitions of key terms such as historical recognized environmental condition or controlled recognized environmental condition have been updated in the new standard. Although the revisions are mostly technical, there is now specific guidance for environmental consultants on what regulatory factors must be in place to support the designation of a controlled recognized environment condition.

3. Expanded Historical Records Review.

The E1527-13 standard entrusted the environmental professional (consultant), with the important judgment of when sufficient historical records had been reviewed in order to determine if past use of the subject or adjacent properties would aid in identifying RECs. ASTM’s advisory committee found that environmental consultants are sometimes less thorough in reviewing historical documents than was necessary to evaluate previous Phase Is. This may be due to client deadlines or other reasons. ASTM has now established a minimum level of records that must be reviewed. This includes aerial photos, fire insurance maps and city directories. Four additional sources must be reviewed for industrial, manufacturing and retail properties (see next paragraph below), including the building department, tax and zoning records. Interviews with persons who are familiar with historical uses of the subject property and those nearby must also be done. The new standard requires that all mandated records information sources must be reviewed for the subject property as well as for adjacent properties. These mandates will likely increase, especially in dense areas, the cost and time required to complete Phase I assessments in these areas.

4. Users Review Title Records

Both the former Phase I standards and the new ones impose on the user of the assessment the obligation search title records for environmental hazards and limitations. According to our experience, the user of an assessment often directs environmental counsel or real estate to review title records and provide it to the environmental consultant. The new standard clarifies that records other than preliminary titles reports or title commitments must be reviewed by the user in order to satisfy this requirement. This review must include records (including title abstracts, conditions and specialized environmental lien reports) dating back to at least 1980.

5. Retail As An Environmental Risk.

The new standard explicitly recognizes that past historical retail use of the subject and adjacent properties can be just as indicative of contamination issues than prior industrial or manufacturing uses. This is due to the pervasive contamination that has resulted from establishments that dry-cleaned material on site. In some cases, remediating such contamination was just as costly and time-consuming than cleaning up contamination from industrial or manufacturing properties. This is due to dry-cleaning solvents being able to move through concrete and other solid substrates, and dive quickly through many soil types. They are also difficult to remove from groundwater contaminated by them. Dry cleaning-related contaminants can pose a threat to human health in states that have strict standards, such as California. They can penetrate buildings and release vapors from soil or water contaminated with dry cleaners. Implementing the new standard will increase the likelihood of revealing former dry cleaning uses in the subject or adjacent properties by requiring expanded historical records research (described under #3).

6. Two PFAS Compounds To Enter Phase I Territory.

As stated in the PFAS update New Federal and State PFAS Regulations, EPA has formally submitted to the White House Office of Management and Budget its plan to designate perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS) as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). A final rule would make PFOA/PFOS CERCLA hazardous substances. This would include their presence or probable presence at a property as potential RECs. Currently, PFOA and PFOS do not fall within the scope of a Phase 1 assessment because they are not CERCLA-declared. Potential buyers and lessees may ask their environmental consultants if they can add PFAS assessment to their Phase I assessment. This will depend on the location and history of the property.

We do not cover all of the fundamental changes made to the standard. Recognizing that not all Phase I assessment readers read the entire report, the new standard now requires additional information to be included in the section on findings and opinions. An assessment should clearly state its expiration date to make it more practical and useful.

In 2022, Phase I assessments are expected to be more expensive and take longer. The new standard is more complex than ever, and it is especially important for users seeking federal liability protections. It is therefore essential that buyers and lessees have an experienced environmental lawyer review Phase I Assessments before closing to ensure that the assessment qualifies the parties for legal protections.