US EPA Adoption of New Phase I ASTM Standard E1527 Delayed by Adverse Comments
Back in November of 2021, ASTM International issued its revised Standard Practice E1527-21 to replace its 2013 version setting forth the specific procedures and requirements for environmental professionals preparing Phase I environmental site assessments. Preparation of a Phase I report under this Standard satisfies one of the obligations under the All Appropriate Inquires (AAI) Rule for asserting the Bona Fide Prospective Purchaser (BFPP) protection to liability for property owners under CERCLA. The new standard contains a number of substantive changes from the 2013 version, including the following:
6-Month Shelf-Life: Current guidance allows for the use of the date of the report (i.e. date of completion) to establish the 6-month shelf-life of the report. The new standard expressly calls for use of the “earliest” of the individual components investigated by the consultant (e.g. interviews, search for recorded environmental cleanup liens, review of government records, site reconnaissance, and the professional’s “Declaration”). Accordingly, consultants will be required to identify each individual components’ associated dates in the report for purposes of assessing validity.
Historical Sources: The Standard has been revised to identify four specific historical resources that must be reviewed in assessing past uses of the Site: (1) aerial photographs, (2) fire insurance maps, (3) local street directories, and (4) historical topographic maps. These sources must be reviewed also for adjacent properties.
Title Searches: The Standard requires that the User obtain and search title records to identify any land use or activity restrictions or environmental liens on the subject property. Previously this has been fairly piecemeal or may have only considered the last change in title. The new standard clarifies the obligation to conduct such reviews and requires research back to 1980.
Emerging Contaminants: The new Standard now references “emerging contaminants,” which targets substances such as per- and polyfluoroalkyl substances (PFAS). PFAS are a class of approximately 4,700 synthetic chemicals used in a variety of industrial and commercial processes. Some states have begun to regulate these compounds, but they are not yet federally regulated “hazardous substances” under CERCLA (although EPA’s “strategic roadmap” sets forth a number of actions to address PFAS during the next couple of years, including regulations under CERCLA). The new ASTM standard treats consideration of these compounds as “non-scope considerations” and states that “emerging contaminants may want to be assessed in connection with commercial real estate, because once these contaminants are defined as a hazardous substance under CERCLA, then these substances must be evaluated within the scope of E1527-21.”
On March 14, 2022, EPA issued proposed and direct-final rules to formally adopt the new standard and incorporate it into the AAI Rule and solicited public comment through April 13, 2022. The new standard was to become effective on May 13, 2022, after which purchasers of commercial property could rely on the new standard as part of their pre-acquisition due diligence activities.
However, a number of stakeholders, including various environmental professionals and financial services industry representatives, submitted adverse public comments to the rulemaking. The comments largely challenged EPA’s continued allowance of the 2013 standard. More specifically, EPA’s rule allows for the option to continue using the prior version with EPA noting that “this action does not require any party to use the ASTM E1527-21 standard” and “EPA’s only action … is recognition of the ASTM E1527-21 standard as compliant with the all appropriate inquiries requirements.” Accordingly, commenters variably citing purported “chaos” and “confusion in the marketplace” as to how to comply with the AAI Rule, and that allowance of the two standards creates a “two-tier” system of compliance.
As a result of these adverse public comments, EPA withdrew its direct final rule on May 2 and is now preparing to address the comments in a subsequent final action based upon the proposed rule. Notwithstanding the large number of adverse comments, it seems doubtful that EPA will simply cease authorization of the 2013 version altogether, and more likely that EPA will instead specify a timeframe for sunsetting the older version.
Nonetheless, there remains a degree of risk for interested parties with commercial property acquisitions occurring in the near future. They must now decide whether to conduct environmental assessments under the 2013 version which remains effective for now, or begin utilizing the 2021 version of the ASTM standard with the view that it will soon become effective with little substantive change aside from addressing the dual compliance track. These parties no doubt want to avoid finding out a month prior to Closing that they must have their environmental professional go back and do additional investigations to satisfy the 2021 version. As such, these parties must closely monitor this issue to assess how EPA addresses the adverse public comments, as well as the timing for effectiveness of the new standard in relation to their property Closings.