There is a big change on the horizon that will significantly impact commercial real estate transactions. ASTM E1527-13, entitled Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process, is the nationally recognized standard for evaluating environmental risk at a commercial property during acquisition or financing. The ASTM standards expire every eight years, and ASTM E1527-13 is scheduled to sunset on December 31, 2021. Therefore, the new standard, ASTM E1527-21, must be finalized and published sometime in 2021.
The ASTM subcommittee in charge of this process is considering updating certain key components to the standard. These changes are sure to have an impact on future commercial real estate transactions. While numerous changes are being proposed, most are relatively minor, aimed at reinforcing the current standard. A few, however, will have a significant impact on the standard.
The following provides an overview of those proposed changes and how they will affect the Phase I Environmental Site Assessment (ESA) process, and what our clients can expect out of the new standard.
Just what defines a REC?
If you have been involved in the procurement, preparation, review, or use of a Phase I ESA Report, you know the biggest concern many environmental professionals, buyers/sellers of commercial property, and lending institutions struggle with is “Are there one or more Recognized Environmental Conditions [RECs] at the subject property?”. Just what defines a REC has progressed through revisions to ASTM E1527 in an effort to clarify this most critical concern. At present, a REC is divided into three tiers of risk: 1) REC; 2) Controlled REC [CREC]; and Historical REC [HREC]. A de minimis condition is not a REC. Similarly, Business Environmental Risk is not a REC but may still have a significant bearing on the current or planned future use of a commercial property. Unfortunately, these terms often remain misconstrued and are not applied appropriately.
To address these issues, the forthcoming ASTM E1527-21 standard will likely update the definition of a REC, providing a logic diagram (if this, then that) and numerous theoretical instances to aid environmental professionals and end-users in the understanding and application of these terms under a Phase I ESA.
When is a release “likely?”
The current ASTM E1527-13 standard defines a REC as “the presence or likely presence of any hazardous substances or petroleum products…”. Environmental professionals have diverging opinions on how the word “likely” should be construed regarding determining a REC, with interpretations ranging from very broad to conclusive and strict. The forthcoming ASTM E1527-21 standard is anticipated to include a definition of the word “likely” to improve consistency in determining RECs under a Phase I ESA.
Why must we understand the history of Adjoining Properties?
The ASTM subcommittee has been evaluating potential changes under E1527-21 regarding the level of effort to fulfill historical research requirements for adjoining properties. While the ASTM E1527-13 standard directs historical use evaluation of adjoining properties through information obtained for the subject property, it does not require environmental professionals to address potential gaps in the historical uses of adjoining properties.
The historical use of adjoining properties can be a critical piece of environmental due diligence research in quantifying the potential for oil and/or hazardous material migration (e.g., groundwater, vapor intrusion) onto a subject property.
While not finalized, the proposed changes may require historical research for the adjoining properties to be commensurate with the level needed for the subject property and/or require environmental professionals to address potential gaps in the historical uses of certain adjoining properties. Such revisions could raise the level of effort, thereby increasing the budget and timeframe necessary to complete a Phase I ESA Report (especially for urban, highly developed locations).
Why do we need heightened awareness for Emerging Contaminants?
Per- and polyfluoroalkyl substances [PFAS] are considered emerging contaminants that have been viewed with increasing concern within the environmental consulting profession. Studies have linked adverse human health impacts to PFAS exposures. Notwithstanding, the Environmental Protection Agency (EPA) has yet to classify PFAS as a hazardous substance under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).
While all indications are that the EPA is advancing toward this designation, potential contamination from PFAS does not rise to the level of a REC under the current ASTM Phase I ESA standard. This has left environmental professionals grappling with how to address the risk of PFAS contamination in a Phase I ESA report.
To heighten awareness, E1527-21 proposes to include PFAS and other emerging contaminants in Non-Scope Considerations that some environmental professionals and end-users may want to evaluate as part of a Phase I ESA report.
When is a Data Gap significant?
A data gap may be encountered through a lack of or inability to obtain information required under the standard despite good faith efforts by the environmental professional to gather it. The current standard requires the Phase I ESA report to identify such data gaps.
E1527-21 proposes emphasizing whether significant data gaps impact the environmental professional’s ability to identify RECs. Specifically, the proposed changes would require an opinion about whether significant data gaps warrant additional investigation and discussion of these data gaps in the executive summary for increased transparency.
When does the viability of a Phase I report expire?
EPAs All Appropriate Inquiries [AAI] Rule mandates specific components to be conducted within 180 days of the date of the property purchase or intended transaction. These components are 1) interviews with owners, operators, and occupants; 2) environmental cleanup lien research; 3) visual inspection of the property and adjoining properties; 4) review of government records; and 5) declaration by an environmental professional. After one year, the entire Phase I ESA report must be updated to meet the AAI Rule. A common error of those relying on a Phase I ESA report is to assume the date of the report starts the 180-day timeframe of viability.
E1527-21 will require the date of completion for each element of the Phase I ESA report, allowing end-users to readily identify when one or more updates are needed according to the AAI Rule. Additionally, the updated standard will note that a Phase I ESA report represents a snapshot in time and is not intended to forecast beyond the date it was produced.
When does this new standard go into effect?
Over the next few months, the ASTM subcommittee will consider input from the environmental due diligence industry and stakeholders, then finalize and subsequently vote on proposed changes under E1527-21. The EPA will then review to verify that the new standard meets the intent and requirements of the AAI Rule. The new ASTM E1527-21 standard is expected to be finalized and published before December 31, 2021.
Have questions, concerns, or suggestions to share?
If you are a prospective buyer or seller of commercial real estate or an investor, lender, attorney, or environmental professional and have questions, concerns, or suggestions about the new ASTM E1517-21 standard drafting process, we encourage you to reach out to the ASTM Committee E50 on Environmental Assessment, Risk Management, and Corrective Action. Information on this committee can be found at https://www.astm.org/COMMITTEE/E50.htm