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Our attorneys stay on top of changes in legislation, agency regulations, case law, and industry trends—then craft timely legal alerts to keep clients up to date on legal developments important to their business.

December 16, 2021

New Standards for Environmental Due Diligence for Property Transactions

Key standards for conducting environmental due diligence for property transactions have changed. Following a one-year review process, the American Society for Testing and Materials (ASTM) has updated their standards for conducting a Phase I Environmental Site Assessment (Phase I ESA). Phase I ESA investigations are an essential part of environmental due diligence for real estate transactions, as they evaluate environmental risks and liabilities associated with a subject property. The Environmental Protection Agency (EPA) and state agencies also rely on Phase I ESA investigations to determine whether parties have undertaken sufficient environmental due diligence to claim liability protections under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and state counterparts. 

The new standard, ASTM E1527-21, aims to correct inconsistencies in environmental due diligence work and reflect current industry standards. The most significant changes in the new Phase I ESA standards include the following:

  1. New Definition for Recognized Environmental Conditions (RECs) – The overarching goal of a Phase I ESA is to discover RECs associated with a piece of real property. The new standards tighten the definition of RECs and remove ambiguity for environmental professionals (EPs) reviewing a site. The new standards also include an appendix with a REC flowchart and a comprehensive list of REC examples. 
  2. Requirement to Use Standard Historical Sources – The previous Phase I ESA standards allowed EPs to review historical sources at their discretion. The new standards now require EPs to review a minimum number of historical sources.
  3. New Significant Data Gap Definition – The previous standards required EPs to identify significant information or observational related data gaps in a Phase I ESA but did not define the word “significant.” The new standards provide a definition and require EPs to discuss how significant data gaps affected their ability to draw conclusions about RECs for a subject property. 
  4. Emerging Contaminants as a Non-Scope Consideration – Regulation surrounding emerging contaminants, such as per- and polyfluoroalkyl substances (PFAS), is continually evolving. The addition of emerging contaminants as a non-scope consideration is especially pertinent in states that are now regulating PFAS in drinking water (e.g., Maine, Massachusetts, New Hampshire, New Jersey, New York, and Vermont). 
  5. Obligation of Users Regarding Search for Cleanup Liens – The new standards clearly state that it is a user’s responsibility to provide land title records that describe environmental liens.
  6. Shelf-Life Clarification – Certain portions of a Phase I ESA have always had a viability period of no more than 180 days prior to the date of property acquisition. The new standard specifically requires EPs to state the date each component of the Phase I ESA assessment was completed to document when the 180-day clock starts.

The goal of the ASTM update is to provide a more rigorous and consistent Phase I ESA assessment. However, parties to real estate transactions should be aware that the revisions could result in additional time and costs to complete the Phase I ESA. The EPA has not yet updated its CERCLA “all appropriate inquiries” rule to incorporate the new standard as of this writing, but it will likely do so within the next year.

If you have any questions regarding the content of this alert, please contact Yvonne Hennessey, Environmental Practice Area chair, at yhennessey@barclaydamon.com; Tom Paul, counsel, at 
tpaul@barclaydamon.com; Dan Krzykowski, law clerk, at dkrzykowski@barclaydamon.com; or another member of the firm’s Environmental Practice Area.  

 

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