Environmental Due Diligence Update – New Standard for Conducting Environmental Site Assessments (Phase I Reports) in 2015
EPA published the final rule for the new site assessment standards. The new rule has been in the works for well over a year and represents the final implementation phase of the new “All Appropriate Inquiries” (AAI) standard under CERCLA. The American Society for Testing and Materials (ASTM) has long been the benchmark for how to conduct an environmental site assessment, more commonly referred to as a Phase I. The old standard was ASTM E1527-05; the new standard will be ASTM E1527-13.
The principle difference in the new standard is the requirement to assess the potential presence of vapor releases. This is an interesting requirement, given that CERCLA does not expressly deal with vapor intrusion or air quality. Instead, CERCLA is focused on soil and groundwater contamination. EPA’s response to comments suggesting it had no authority to require investigation of vapor intrusion was that the old standard also included a requirement to assess vapor intrusion. While it is true that ASTM E1527-05 contained a much less rigorous requirement for assessing vapor intrusion, it still fails to explain where EPA finds the statutory authority to require assessment of vapor intrusion in order to establish the innocent landowner and bona fide prospective purchaser defenses.
For buyers, sellers, investors, lenders, and even lease-holders, the first point to note is that the new standard must be met starting in October, 2015. Those interested parties should expect little change in the cost or timing to conduct Phase I reports – after all, Phase I reports are nothing more than a “paper” review of publicly available records to identify recognized environmental conditions (RECs) on the property. However, should the Phase I identify a vapor intrusion risk, those parties should be prepared for potential delays and additional costs in getting the transactions closed.
Once identified, vapor intrusion requires additional testing to ensure that indoor air quality levels are safe for the inhabitants. If not, passive or active ventilation systems will generally be recommended to improve the indoor air quality. In rare cases, the vapor intrusion could be so severe that remediation of the plume beneath the structure may be required, posing serious additional costs and delays.
On new developments, if latent soil problems are proposed to be capped in order to proceed with development, ventilation systems (again active or passive) may be required under the slab, in the underground structures, or at the very least beneath the foundation. These can range from very simple vents to elaborate ventilation systems, with costs tracking the complexity of the system.
In our experience, vapor intrusion issues are generally manageable. If identified as a problem, they can add marginal cost and complexity, but generally do not terminate deals or hang up closings indefinitely. There are, of course, exceptions to this rule and we have been involved in at least one multi-family transaction that did not close because of cost-prohibitive solutions to vapor intrusion issues. Most importantly, prospective purchasers need to direct their environmental consultants to conduct the vapor intrusion risk assessment. Legal counsel can then advise as to the best methods of protecting against potential liability, addressing costs and risks between buyers, sellers, and lenders, and ensuring that the All Appropriate Inquiries standard is met to establish the available CERCLA defense.
Finally, unless the property is intended to be held indefinitely, the new ASTM standard is available and should be followed starting now. Future transactions will move much more quickly if an existing report shows no vapor intrusion issues, and buyers, sellers, and lenders can assume that the next transaction on the property will first ask for an existing Phase I showing no vapor intrusion issues.