A Phase I Environmental Site Assessment (ESA) is the widely accepted process for evaluating environmental risks on property, often conducted to support real estate acquisition and financing activities. As such, stakeholders involved in property transfer and financing activities on real estate should be aware of proposed changes to the Phase I ESA standard.
The American Society for Testing and Materials (ASTM) publishes the Phase I ESA standard under the designation "ASTM E 1527." Revisions to the standard are completed periodically to increase quality and consistency in Phase I ESAs; the current standard (ASTM E1527-2013) was put in place in 2013. Proposed revisions to the existing standard have been ongoing for some time, with the expectation that the new standard will be finalized and released in late 2021.
Envirologic's Due Diligence Group continues to monitor the ASTM standard review process as part of our continuous efforts to provide clients with the most current and comprehensive environmental due diligence support. While revisions to the ASTM standard have not been finalized, we have assembled some of the proposed items of note below.
In the Phase I ESA process, the term "Recognized Environmental Condition" (REC) is often generally referred to as a red flag or a "likely" indication of an environmental concern associated with property (i.e., a release). The new standard will provide extensive discussion to help consultants and users determine what is and is not a REC. Many consultants currently identify small issues and risks as RECs in order to cover all bases (i.e., avoid being sued). However, issues that would not likely draw regulatory enforcement for cleanup -- such as small surface stains on concrete or asphalt from parked equipment and regulated underground storage tanks with no known regulatory concerns -- should not be considered RECs. The new standard hopes to add clarity and consistency, so that only those issues that are likely to have a greater-than-minimal impact to property conditions and owner/operator liability are called out for further action.
Over time, the ASTM standard added the terms "Controlled Recognized Environmental Condition" (CREC) and "Historical Recognized Environmental Condition" (HREC) in an effort to further facilitate discussions regarding known contaminant conditions currently or historically existing on a site but at levels that allow the responsible party to meet regulatory cleanup requirements. These terms are often misapplied, resulting in increased confusion regarding the current regulatory status of a site or potential ongoing due care considerations.
The proposed language changes to the ASTM standard require the Environmental Professional (EP) to articulate the rationale utilized to determine specifically why a condition represents a CREC or HREC. The proposed language additionally includes acknowledgment in the Phase I ESA that a CREC or HREC may later be identified as a REC as a result of new conditions on site, migration pathways, or changes in regulatory standards in the future. For example, EGLE issuing more stringent cleanup criteria could result in contamination on a property that was previously identified as an HREC because it did not exceed cleanup criteria subsequently being subject to potential regulatory response and thus considered a REC. A change in site use or site conditions (e.g., commercial to residential or removal of asphalt cover over impacted soils) may not be consistent with land or resource use restrictions associated with a CREC.
The Phase I ESA process has always included an evaluation of the historical use of the property subject to acquisition/financing, as well as nearby off-site properties. Proposed language changes to the ASTM standard indicate additional scrutiny of the historical use of adjoining properties may be necessary. The history of adjoining properties under the current ASTM standard is evaluated using information collected for the subject property without a requirement to fill in gaps in the history for off-site properties. The proposed language changes may result in the need for EPs to perform additional historical research to fill in data gaps for adjoining properties. This in turn could result in increased time and cost to complete the Phase I ESA as additional data is accessed and reviewed for off-site properties.
The current ASTM standard includes a discussion of data gaps, which are defined as information that could not feasibly be obtained within the time constraints or budget of a Phase I ESA. The EP conducting the Phase I ESA must determine if a data gap has materially affected the EP's ability to identify RECs. Proposed ASTM language would require the EP to provide an opinion as to whether additional investigation should be conducted to address significant data gaps; the current standard allows the EP to be silent on such an opinion. The proposed language would additionally require that significant data gaps be identified in the Executive Summary of the Phase I ESA to ensure they are more readily apparent to the user of the Phase I ESA.
As regulatory agencies continually evaluate the health risks and potential regulation of various compounds, new contaminants (referred to as emerging contaminants of concern) are identified for further scrutiny. Per- and polyfluoroalkyl substances (PFAS) represent a significant emerging contaminant based upon known health risks; however, PFAS have not yet been classified as a hazardous substance by the Environmental Protection Agency (EPA). As such, potential impacts to a site from PFAS are not considered a REC under the current ASTM standard or proposed ASTM standard revisions. Rather, under the proposed revisions, emerging contaminants such as PFAS will be added to the list of "non-scope issues" associated with the Phase I ESA process, similar to asbestos and mold. Envirologic has experienced, certified staff able to support the "non-scope" services that are relevant to property valuation but are beyond the scope of the ASTM Phase I ESA standard.
Additional issues evaluated under the proposed new standard include clarification regarding the scope of the Phase I ESA site inspection, how long a Phase I ESA remains valid (i.e., when the "clock" starts ticking relative to All Appropriate Inquiry [AAI]), and clarification on Phase I ESA user obligations.
The ASTM community is committed to the quality and consistency of Phase I ESA reports while meeting the needs of the industry at large and the various stakeholders, including real estate purchasers, investors, lenders, attorneys, and of course EPs. The update process always serves as a reminder of these different stakeholders' varying risk tolerance and objectives. It is essential that the voices of Phase I ESA users are heard and considered during the renewal process. If you are a Phase I ESA user, such as a real estate investor or lender, reach out to your environmental consultant or another firm that is on the ASTM committee to receive further clarification about these potential changes or to voice any concerns.
Envirologic's entire series of due diligence infographics, which describe the Phase I ESA process and the environmental due diligence services our team can provide, are linked below. To learn more or discuss your specific project needs, please contact Erik Peterson, our Manager of Due Diligence Services, or connect with one of our other experienced team members at (269) 342-1100.
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