What to expect from USEPA’s updates to the ASTM Phase I ESA Standard

Last year, the United States Environmental Protection Agency (USEPA) adopted ASTM E1527-21 Standard Practice for Phase I Environmental Site Assessments (ESA) as meeting All Appropriate Inquiry (AAI) requirements for property due diligence and CERCLA liability defense. Starting February 13, 2024, only the new E1527-21 and E2247-23 Standards will be recognized by USEPA as satisfying AAI. In this article, we discuss what this means for investors, financial institutions, and attorneys.

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USEPA announced that it would accept the American Society for Testing and Materials (ASTM) E1527-21 Standard for Practice for Phase I ESAs into the AAI requirement under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) on December 15, 2022 and effective on February 13, 2023, with a one-year phase-in period to February 13, 2024.

For investors, financial institutions, and attorneys actively engaged in due diligence involving real estate property, this transition to the new standard may have already occurred; however, given the challenging market conditions for commercial and industrial real estate transitions during 2023, and forecasts of improved conditions in mid-2024, now is truly the time to adopt the new standard to ensure your due diligence is effective and meets good commercial and customary practice of the industry today.

What is ASTM E1527-21?

E1527-21 is ASTM’s updated standard for conducting Phase I ESAs, which is a primary step in the real estate due diligence process to assess conditions at the subject property and adjoining properties to identify and characterize Recognized Environmental Conditions (RECs), historical RECs, controlled RECs, and de minimus conditions.

Whether the asset is commercial or industrial, retail or multifamily, a thorough due diligence assessment using the current standard is paramount to identifying, assessing, and mitigating environmental risk, aids in effective pricing and negotiations between buyer and seller, ensures that there are no post-closing surprises, and provides CERCLA liability defense, should it be needed in the future.

After a one-year transition period, it’s now time to implement the new standard. After February 13, 2024, only the E1527-21 standard practice will be recognized as meeting AAI requirements for protection from liability for contamination under CERCLA.

What are the updates to the Phase I Standard?

While the updated ASTM E1527-21 is generally consistent with the previous version, notable changes include changes to assessment requirements and historical research as follows:

Important updates to “strengthen the deliverable” – which means improving the quality and utility of the Phase I ESA report. Specific requirements include site photographs, especially representative of onsite operations, as well as to demarcate findings and observations identified in the report.
Additional strengthening is encouraged by including guidance to conduct more thorough historical research. Further clarification also outlines that historical research should include adjoining properties, going beyond the boundaries of the subject property. While some may have claimed that the information was not readily available or ascertainable, the updated standard makes it clear that a variety of historical resources may be employed, thereby making information pertaining to the historical use of the subject and adjoining properties both readily available and reasonably ascertainable. For many properties, the Phase I ESA often garners pertinent information from the “Big Four” of historical resources, which are fire insurance maps, aerial photographs, street or city directories, and historical topographic maps. To improve quality and utility in city directory research, a white paper was prepared to elevate and guide a more thorough research process CD Research White Paper 3.7.23.pdf (dropbox.com)
It is important to note that the recently published ASTM E2247-23 Phase I ESA of Forestland and Rural Property standard has been revised to mirror the changes to ASTM E1527-21 to be in conformance with USEPA’s AAI requirements for large tracts of land including forestland and rural property.

Key takeaways

As of February 13, 2024, ASTM E1527-21 becomes the primary standard for conducting Phase I ESAs, or the E2247-23 for forestland and rural property. Users of Phase I ESAs should ensure that their reports are AAI compliant by utilizing the ASTM E1527-21 standard for all new assessments going forward, whether as part of an acquisition, divestiture, financing, and/or leasing activity. Phase I ESAs may be procured by commercial and industrial property owners/operators, investors, financial institutions, and attorneys who support their clients’ transactions. For transactions of large tracts of forestland and/or rural property, the ASTM E2247-23 standard is now available, consistent with ASTM E1527-21, and meets the requirements of AAI and CERCLA liability defense.

Ramboll can help

Our due diligence team is focused on delivering quality Phase I ESAs in conformance with ASTM E1527-21 and the AAI rule to assess all types of commercial and industrial properties nationwide, as well as abroad for multinationals who may elect to consider environmental conditions of assets abroad for consistency with their US portfolio. Please contact our team for your assessment needs for acquisition, divestiture, financing, and leasing. The Phase I ESA can be effective as a baseline report when considering new tenant operations as well as a tenant exit assessment strategy.

Want to know more?

Elizabeth Krol
Principal
+1 781 820 6897

References

The following industry standards may be used to comply with the requirements set forth in §§ 312.23 through 312.31:

The procedures of ASTM International Standard E1527–21 entitled “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process.” This standard is available from ASTM International at astm.org, 1–610–832–9585.
The procedures of ASTM International Standard E2247–16 entitled “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process for Forestland or Rural Property.” This standard is available from ASTM International at astm.org, 1–610–832–9585.
Until February 13, 2024, the procedures of ASTM International Standard E1527–13 entitled “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process.” This standard is available from ASTM International at astm.org, 1–610–832–9585.[70 FR 66107, Nov. 1, 2005, as amended at 73 FR 78655, Dec. 23, 2008; 78 FR 79324, Dec. 30, 2013; 79 FR 60090, Oct. 6, 2014; 82 FR 43312, Sept. 15, 2017; 87 FR 76581, Dec. 15, 2022]

Brownfields All Appropriate Inquiries | USEPA

Federal Register: eCFR :: 40 CFR Part 312 -- Innocent Landowners, Standards for Conducting All Appropriate Inquiries