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 that an update to the Phase I ESA standard has been released.
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 previous standard was put in place in 2013. A discussion of proposed revisions had been ongoing for some time prior to the November 2021 release of the updated standard (ASTM E1527-2021).
Envirologic's Due Diligence Group has been evaluating the final language associated with the new ASTM standard as part of our ongoing efforts to provide clients with the most current and comprehensive environmental due diligence support. Envirologic notes the following regarding the ASTM E1527-21 standard:
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 provides extensive discussion to help consultants and users determine what is and is not a REC. 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. Updates to appendices include a flow chart to support appropriate identification of RECs.
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 updates 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 standard additionally indicates that the EP should acknowledge 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, the Michigan Department of Environment, Great Lakes, and Energy (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 ASTM standard includes a discussion of data gaps, a lack of or inability to obtain information required by the standard despite good faith efforts by the EP to gather such information. The updated ASTM standard defines both a data gap and now also the term significant data gap to provide clarification. If the lack of information affects the ability of the EP to identify a REC, then the data gap should be identified as a significant data gap.
The updated standard additionally identifies "Property Use Limitations" in an effort to reduce uncertainty regarding land and resource use restrictions potentially applied to a property to address contamination that remains on site.
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. The updated ASTM standard provides additional guidance regarding the level of scrutiny of the historical use of adjoining properties necessary. The updated standard provides further guidance regarding the potential need for EPs to perform additional historical research to fill in data gaps regarding site use history for adjoining properties. This in turn could result in an increase to the Phase I ESA timing and budget that should be considered during project scoping.
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 ASTM standard. However, under the new standard, emerging contaminants (such as PFAS) have been added to the list of "non-scope issues" associated with the Phase I ESA process, similar to asbestos and mold. The new standard additionally indicates emerging contaminants not regulated at the federal level may be subject to state regulation. 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 addressed under the new standard include clarification regarding the site inspection methodology, suggested Phase I ESA report format, and expanded appendices.
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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