New Standard Adopted for Due Diligence of Contaminated Property

The recent infrastructure bill passed by Congress and signed by President Biden included $21 billion to clean up Superfund and brownfield sites.[1]  In order to qualify as “bona fide prospective purchasers” (“BFPPs”) of brownfield properties, buyers and investors must undertake “all appropriate inquiry”[2] or “AAI” as part of their due diligence prior to investing in brownfield properties.

One of the primary components of AAI is the preparation of a Phase I Environmental Site Assessment or “Phase I.”  The AAI regulations require that Phase I’s be prepared by qualified “environmental professionals,” who conduct their assessments according to rules set up by the American Society for Testing and Materials (ASTM) Committee on Environmental Assessment, Risk Management and Corrective Action.  The ASTM Committee approved a new standard for conducting Phase I’s in November 2021 – the E1527-21 Standard – and submitted the new standard to EPA for review and approval as part of the AAI regulations.  While approval of the new standard by EPA may take up to a year, most environmental professionals should begin using the new standard for Phase I ESAs conducted in 2022. 

Some of the more significant changes between the new ASTM Standard and the prior ASTM Standard (E1527-13) include:

• A new definition of “Recognized Environmental Condition” or “REC,” which includes both the presence of hazardous substances or petroleum on the property and the “likely” presence of such substances.  It also includes the addition of emerging contaminants, such as manufactured chemicals like PFAS, which EPA recently listed as chemicals whose releases must be reported;[3]
• Clarification regarding the shelf-life of Phase I’s – to be valid as a basis for BFPP protections, Phase I’s must be completed no more than 180 days prior to the acquisition of the brownfield property.  The new ASTM standard identifies five specific elements that must be updated within that 180-day period;[4]
• A new type of “REC” and the definition of historical RECs – Phase I’s already identify “recognized environmental conditions” or “RECs” which are conditions that indicate the presence of a release of hazardous substances or petroleum.  Under the new ASTM standard, “Controlled Recognized Environmental Conditions” or “CRECs” must be identified.  These are RECs that have “been addressed to the satisfaction of the applicable regulatory authority” and allowed to remain in place subject to controls on the development or use of the property.  RECs which have been addressed to allow unrestricted use, so called “historical RECs,” must be assessed to confirm that the closure conditions would meet current standards for unrestricted uses;
• Defining a “significant data gap” – the new ASTM standard defines a “significant data gap” as one that “affects the ability of the [consultant] to identify a recognized environmental condition.”  An example might be an inaccessible building with activities that might create a recognized environmental condition.

If you have questions about due diligence in connection with the acquisition or development of contaminated property, please contact Steve Jones or any member of our Natural Resources and Environmental Practice Group.

[1] White House Fact Sheet on “Bipartisan Infrastructure Deal,” dated November 8, 2021, which can be viewed here.

[2] “All appropriate inquiry” was defined in regulations adopted by the EPA following the Brownfield Amendments to the Superfund (CERCLA) statute in 2002, which set up the bona fide prospective purchaser defense to liability for cleanup of contaminated property.  EPA’s summary of those regulations, which found at 40 C.F.R. Part 312, can be viewed here.

[3] “Likely” contamination “is neither certain nor proved,” but the environmental professional must find that a “reasonable observer” would expect or believe it to exist “based on the local and/or experience and/or available evidence.”  EPA’s January 24, 2022 news release requiring reporting of releases of PFAS can be viewed here.

[4] These five elements are (1) interviews; (2) searched for environmental cleanup liens; (3) review of government records; (4) site reconnaissance; and (5) the declaration of the Environmental Professional who prepared the Phase I.