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What Real Estate Buyers and Sellers Need to Know About an Upcoming Environmental Standard

    Client Alerts
  • September 12, 2022

After the real estate boom in the Southeast over the past few years, there are fewer and fewer examples of clean and pristine land available for commercial or industrial use. That means more properties at risk for existing contamination – and more risks for prospective purchasers, who can be held liable for preexisting contamination if they do not undertake the appropriate inquiry based on environmental laws.

A key part of that inquiry is changing as soon as this fall, and it has important implications for the real estate, energy, manufacturing, and financial services industries. The American Society for Testing and Materials (ASTM) is revising its standard for conducting Phase I Environmental Site Assessments (ESAs) for the first time in almost a decade. The new environmental standard greases the wheels for the buying and selling of property with potential environmental concerns: the Phase 1 ESA may shield buyers from liability under the Superfund law (CERCLA). This standard can provide liability protection if the proper criteria outlined in these standards are met.

The ASTM Committee on Environmental Assessment, Risk Management and Corrective Action issued a revised version of the standard – ASTM E1527-21 – on November 1, 2021. The new standard was expected to go into effect in May 2022 after the Environmental Protection Agency issued a direct final rule adopting ASTM E1527-21. However, the EPA withdrew the direct final rule after receiving adverse comments, including concerns regarding whether the currently adopted method, ASTM E1527-13, should terminate upon adoption of ASTM E1527-21. The EPA will address these comments in a subsequent final action without a second comment period.

ASTM E1527-21 is now expected to be adopted this fall. Here’s a summary of its key changes:

Emerging Contaminants

ASTM E1527-21 adds the consideration of “substances not defined as hazardous substances (including some substances generally referred to as emerging contaminants) unless and until such substances are classified as a CERCLA hazardous substance” to the list of “non-scope” items that may be addressed in the Phase I ESA. ASTM E1527-21 also includes a list of such substances in the appendix, including per- and polyfluoroalkyl substances (PFAS). Although the EPA has not yet designated any of the PFAS compounds as hazardous substances under CERCLA, the appendix notes that some emerging contaminants may be regulated under state law and may be federally regulated in the future.

Updated Definitions for a Recognized Environmental Conditions (REC), Historical REC (HREC), and Controlled REC (CREC)

ASTM E1527-21 includes the following updated and clarified definition of a REC:

The term REC means (1) the presence of hazardous substances or petroleum products in, on, or at the subject property due to a release to the environment; (2) the likely presence of hazardous substances or petroleum products in, on, or at the subject property due to a release or likely release to the environment; or (3) the presence of hazardous substances or petroleum products in, on, or at the subject property under conditions that pose a material threat of a future release to the environment.

ASTM E1527-21 also includes subtle changes to the definitions of CREC and HREC and provides examples of each in an appendix to guide the environmental professional’s determination.

Historical Resources

ASTM E1527-21 specifies that, at a minimum, four specific historical resources should be reviewed to evaluate the historical uses of the subject property, provided such resources are reasonably ascertainable and likely to be useful in the judgement of the environmental professional. The four specific resources are: aerial photographs, fire insurance maps, local street directories, and historical topographic maps.

Report Shelf Life

ASTM E1527-21 clarifies that the Phase I report will remain viable when it is completed within 180 days prior to the date of acquisition, or up to one year if five specific components of the report have been updated, including interviews, searches for recorded environmental cleanup liens, review of government records, site reconnaissance of the subject property, and the declaration of the environmental professional. ASTM E1527-21 requires that the report identify the dates that each of the five components were completed.

Title Searches

ASTM E1527-21 clarifies recommended procedures for searching land title records for environmental liens or AULs, and it specifies that land title review must reach back to 1980. As in ASTM E1527-13, the land title record search remains a user responsibility, and may be completed by the user of the report rather than the environmental professional.

Key Takeaways

In sum, the ASTM’s new standard clarifies the requirements for emerging contaminants and other elements of Phase 1 ESAs, which are a critical ingredient in real estate deals involving potentially contaminated property. Clients in the commercial real estate, homebuilding, energy, financial services, and manufacturing industries will all want to ensure that environmental professionals are meeting the updated standard once it becomes official this fall. If they don’t, the Phase 1 ESA won’t be worth the paper it’s written on – and the purchaser could be subject to thousands if not millions of dollars in liability under CERCLA.