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EPA Approves ASTM E1527-13 Phase I ESA Standard for All Appropriate Inquiry

Environmental Law Update George J. Marek, Lawrence W. Falbe, Lauren G. Harpke, Raphael F. Ramos

On December 30, 2013, the United States Environmental Protection Agency (“EPA” or the “Agency”) approved the recent American Society for Testing and Materials (“ASTM”) Standard E1527-13 as sufficient to satisfy All Appropriate Inquiry (“AAI”) for potential liability protections under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). 78 Fed. Reg. 79,319. As a result, E1527-13 now stands as the baseline for Phase I Environmental Site Assessments (“Phase I ESAs”) and any individuals performing Phase I ESAs should ensure that their assessments are in compliance with that standard going forward.

Published on November 6, 2013, the E1527-13 practice is intended to represent the evolving state-of-the-art benchmarks in environmental due diligence protocols. The EPA’s December 30, 2013 final rule amends 40 CFR Part 312 to reference the new E1527-13 standard and clarify that individuals performing AAI in a manner consistent with the new standard may be provided with some liability protections under CERCLA. AAI compliance and the resulting limitation on CERCLA liability is often the reason that parties conduct a Phase I ESA. Thus, EPA's action impacts private and public parties who, as bona fide prospective purchasers, innocent landowners, or contiguous property owners, are buying properties that are potentially contaminated and intend to claim a limitation on CERCLA liability in conjunction with the property purchase.

Phase I Environmental Site Assessments prepared under the revised standard should now include discussion of new factors such as evaluation of the potential for hazardous vapors to migrate onto the target property, and a review of governmental regulatory files for the target and/or adjacent properties if those properties are listed in a public environmental database. These factors were optional “non-scope” considerations under the old ASTM E1527-05 standard, but are now among several potential impacts that must be considered under E1527-13 in order to ensure eligibility for the protections afforded by AAI.

With E1527-13 being the gold standard for AAI, businesses and individuals expecting to undertake real estate or corporate transactions should keep several factors in mind when performing Phase I Environmental Site Assessments. First, the new E1527-13 standard will likely cause an increase in the cost and time required to complete a Phase I Environmental Site Assessment. As noted above, ASTM Standard E1527-13 more strongly requires the environmental professional preparing the report to conduct regulatory agency file reviews when the property or adjoining properties are listed in a standard environmental records source. While some consultants already perform this review as a matter of customary practice, many others will be adding this review to their standard scope of work. As a result, various factors such as the responsiveness of a regulatory agency in responding to file requests or the sheer volume of material to be reviewed in those files could increase the anticipated turnaround time of a Phase I ESA. The increased time and work involved in preparing the Phase I ESA will almost certainly be accompanied by an increase in the consultant’s fees. As a result, parties entering into purchase and sale agreements should consider negotiating longer due diligence inspection periods to ensure adequate time to complete the reviews, and should consider the potential increased costs during the budget planning process.

Second, new language in ASTM E1527-13 may result in a greater number of issues being classified as an environmental concern in the Phase I ESA, leading to more scrutiny from lenders and increased supplemental site investigations (often referred to as Phase II site investigations). Ultimately, an increase in identified environmental conditions could also increase the bottom line cost of conducting a complete and thorough environmental due diligence review. The revised ASTM standard not only revises the definitions of a Recognized Environmental Condition (“REC”) and Historic Recognized Environmental Condition (HREC), but also adds an additional category for Controlled Recognized Environmental Conditions (CREC) for RECs managed to a regulatory standard that does not allow unrestricted use (e.g., the property is subject to a ground water use restriction). Furthermore, ASTM E1527-13 requires greater attention be paid to vapor intrusion and indoor air quality concerns when compared to ASTM E1527-05, which considered indoor air quality as a non-scope consideration. The risk of increased scrutiny and follow-up Phase II site investigations is particularly likely to arise in the context of vapor intrusion and indoor air quality, which are hot topics at many regulatory agencies across the nation.

Finally, it is important to emphasize that while the EPA’s final rule approving E1527-13 as AAI compliant does not rescind its existing approval of E1527-05, we highly recommend that entities performing AAI adopt the new standard. In the Federal Register notice approving E1527-13, the EPA also indicated that it will soon propose amending the AAI rule in 40 CFR Part 312 to remove the reference to ASTM E1527-05 as being AAI compliant. With this anticipated revision, EPA intends to promote use of the newly revised ASTM standard that is now recognized as the consensus state-of-the-art standard. It will also eliminate the confusion that currently exists, since the regulation still references E1527-05 as AAI compliant even though that practice is no longer recognized by ASTM as meeting industry standards. This is a marked change from the Agency’s prior position, which was that both E1527-05 and E1527-13 would be sufficient to satisfy AAI. Because the EPA is reversing course on this topic and because the decision to rescind approval of E1527-05 was not discussed in past Federal Register notices, the EPA will propose the rescission in a separate rulemaking in order to provide the necessary opportunity for public comment.

In any event, although ASTM E1527-05 may be a viable option for the time being, the best practice for parties seeking protection under AAI would be to perform Phase I Environmental Site Assessments in compliance with E1527-13 in order to avoid future complications.

For more information, please contact George Marek at (414) 277-5537/ george.marek@quarles.com, Larry Falbe at (312) 715-5223 / lawrence.falbe@quarles.com, Lauren Harpke at (414) 277-5183 / lauren.harpke@quarles.com, Raphael Ramos at (414) 277-5539 / raphael.ramos@quarles.com, or your Quarles & Brady attorney.