New Standard for Phase I Environmental Site Assessments Takes Effect February 13, 2023
For real property purchasers seeking to protect against federal environmental liability attributable to conditions created by prior owners, preparation of a Phase I Environmental Site Assessment (Phase I) is essential. On December 15, 2022, the United States Environmental Protection Agency (EPA) published a final rule (87 Fed. Reg. 76578) revising the standard for complying with the All Appropriate Inquiries (AAI) Rule in 40 C.F.R. Part 312.
AAI is a critical element of three liability defenses under the Comprehensive Environmental Response, Compensation & Liability Act (42 U.S.C. § 9601 et seq.) (CERCLA), the federal Superfund law. CERCLA imposes strict, joint and several liability on property owners for cleanup costs for hazardous substances released on their property, regardless of whether those contaminants were released during their ownership of the property or that of prior owners or operators. The liability defenses for innocent landowners (42 U.S.C. § 9607(b)(3)), contiguous property owners (42 U.S.C. § 9607(g)) and bona fide prospective purchasers (42 U.S.C. § 9607(r)) all require purchasers, prior to closing, to have conducted “all appropriate inquiries,” which may then be described in the Phase I.
The final rule takes effect February 13, 2023. It provides that to meet the AAI requirements, purchasers of real property must conduct a Phase I consistent with an updated standard established by ASTM International: ASTM E1527-21, which replaces the 2013 version, ASTM E1527-13. The final rule provides for a twelve-month phase-out of the 2013 ASTM standard and indicates that a Phase I based on the 2013 ASTM standard will no longer comply with the “all appropriate inquiries” requirement as of February 14, 2024.
ASTM E1527-21 provides the following key changes from the 2013 standard:
- Revised definition of “Recognized Environmental Conditions” (REC) to clarify the distinction between a “known” release and a “likely” release of hazardous substances or petroleum products on or to the subject property.
- Revised definition of “Historical REC” (HREC) to clarify that conditions must meet current regulatory standards for unrestricted use.
- Requirement to identify significant data gaps.
- Greater emphasis on emerging contaminants (such as PFAS) that fall under the category of “non-scope considerations” but may warrant inclusion if regulated by the State or added to the list of CERCLA hazardous substances.
In addition, the new standard provides that important elements of the Phase I must be completed no more than 180 days or six months before the date the property is acquired, and that all other elements must be completed or updated no more than one year before the acquisition.
Preserving CERCLA defenses is critical for any purchaser of potentially contaminated commercial or industrial property and conducting a legally and technically compliant Phase I is an essential (although not the only) step required to preserve those defenses.
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