Buying Property? Make Sure Your Phase I ESA Is Worth the Paper It’s Printed On
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Buying Property? Make Sure Your Phase I ESA Is Worth the Paper It’s Printed On

Brownstein Client Alert, Oct. 4, 2023

Imagine it’s August 2024 and you just got the dreaded news from a colleague that a government agency suspects that there are hazardous substances on a new property your company just bought. Even worse, your colleague just handed you an order from said government agency directing you to do soil and groundwater sampling.

“You got a Phase I Environmental Site Assessment before we closed, right?” you ask, crossing your fingers that your company can claim to be an “innocent purchaser,” one of the very few affirmative defenses available to current owners under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA).

“Of course,” your colleague replies. “I’ll send it to you right now.”

Your hopes rise when you get the link to the Phase I, only to fall when you realize it isn’t worth the paper it’s printed on. That’s because the way it was prepared does not meet the “all appropriate inquiries” standard and, therefore, cannot support your “innocent purchaser” defense.

A nightmare scenario, surely, and one that could easily happen to many unwary real property purchasers after Feb. 13, 2024. That’s when the U.S. Environmental Protection Agency’s (EPA) rule for what constitutes “all appropriate inquiries” will only recognize Phase I’s prepared according to the new ASTM International E1527-21 standard, making the prior E1527-13 standard obsolete.1

Don’t worry though, you don’t have to wait until next year to acclimate yourself to the new ASTM standard for Phase I’s. That’s because the new standard came into effect on Feb. 13, 2023, and many environmental professionals are already preparing Phase I’s that comply.

What’s changed in the new ASTM standard, you ask?

While some of the changes are nuanced, the updates found in E1527-21 are important. Some of the key changes include, but are not limited to:

  • Revised definitions of familiar terms, like Recognized Environmental Conditions (RECs), Controlled RECs (CRECs), and Historical RECs (HRECs), not to mention the addition of Appendix X4. Appendix X4 provides guidance to help distinguish RECs vs. CRECs vs. HRECs, and includes a flow chart and examples to provide clarity and consistency;
  • Historical resources must now be reviewed on both subject properties and adjoining properties;
  • Increased specificity of a property’s use, requiring additional review of source materials for retail, industrial or manufacturing properties;
  • Important clarifications on the shelf life of a Phase I. Accordingly, the Phase I is now required to include completion dates for all the components of a Phase I report to make it easier to tell when the 180-day shelf life of the report expires;

    *This is a helpful change because Phase I recipients often assume that the life of the Phase I runs from the completion date on the front of the document, but actually, it runs from the date of the earliest completed component. For example, if the site inspection was the first component to be completed and it happened 30 days before the Phase I was delivered, the Phase I is already 30 days old when it is received.
  • Guidance on how to address emerging contaminants (such as per- and polyfluoroalkyl substances (PFAS) and PCB-containing building materials), which explains that while environmental professionals are not required to include emerging contaminants as “hazardous substances” in a Phase I, they are able to include them as “Non-Scope Considerations.”

    *Two important caveats here: First, PFAS compounds should be included as “Non-Scope Considerations” when regulated as a hazardous substance under state law, or when the user requests that the environmental professional preparing the Phase I include them. And second, if/when any PFAS compounds are defined as hazardous substances under CERCLA, an action that practitioners have been expecting EPA to take for some time, then such PFAS compounds must be evaluated as hazardous substances in a Phase I, not merely as a Non-Scope Consideration.

So, now you know. When you order up that Phase I, make sure it’s prepared to the new ASTM International E1527-21 standard.

For more information and guidance related to preparing legally adequate Phase I’s and how to preserve affirmative defenses against nightmare scenarios, please reach out to our Brownstein team.

1 ASTM International creates standards of practice, including the E1527 series of standards used to assess the environmental condition of commercial real estate, taking into account commonly known and reasonably ascertainable information.

This document is intended to provide you with general information regarding changes to Phase 1 Environmental Site Assessments. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.

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