Potential Impacts from New ASTM Standard for Phase I Environmental Site Assessments

For the past eight years, the world of Phase I Environmental Site Assessments has been governed by American Society for Testing and Materials (“ASTM”) Standard E1527-05. However, ASTM’s policy is to review its standards every eight years, and the shelf life of the E1527-05 Standard has now passed. Borne out of ASTM’s review process is the new ASTM E1527-13 Standard, published on November 6, 2013. While ASTM E1527-13 has not yet been blessed by EPA as meeting the requirements of All Appropriate Inquiries (“AAI”) under CERCLA, that designation is expected to come before long. Although one can continue to use ASTM E1527-05 while preparing Phase I Environmental Site Assessments (“ESAs”) until the new E1527-13 Standard is deemed by EPA to be AAI compliant, the better course of action is to proceed with using ASTM E1527-13 now, rather than risking using a standard that is likely to soon be considered deficient.

There are several potential impacts that may arise once ASTM E1527-13 becomes the gold standard for AAI that businesses and individuals expecting to undertake real estate or corporate transactions in the near future should consider.

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. 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. 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 definition 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., 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 potential for the increased identification of RECs, HRECs, or CRECs and the greater focus on vapor intrusion leads to the risk of increased scrutiny by lenders and the potential for more recommendations to conduct follow-up Phase II site investigations to evaluate the various RECs identified in a Phase I ESA. The risk of increased scrutiny and follow-up 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.

For more information, please contact George Marek at 414-277-5537/ Lauren Harpke at 414-277-5183 / lauren.harpke@quarles.com or your Quarles & Brady attorney.