In November 2013, the American Society for Testing and Materials (ASTM) issued its revised standard for performing Phase I environmental site assessments. The U.S. Environmental Protection Agency (EPA) recognized this revised standard as representing acceptable All Appropriate Inquiry, or AAI, for the purpose of supporting various defenses to liability under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA). However, both the revisions and the EPA’s approval of them are likely to cause confusion in determining the appropriate level of scrutiny in evaluating potentially contaminated properties in corporate and real estate transactions. Counsel involved in such transactions will need to pay special attention to Phase Is that are performed over the next few years to ensure that they provide the necessary information and conform to the new requirements.

The Phase I requirements arose from the need for a standard protocol in performing environmental site assessments to determine the potential for CERCLA liability associated with the purchase of real estate or business entities. ASTM issued its first standard in 1997, which recognized and codified existing industry practices. In response to the 2002 CERCLA amendments, which created additional defenses based on the performance of AAI, the EPA issued revised regulations in 2005 that identified the key elements of AAI based on the ASTM’s standard. In addition, the EPA specifically determined that performing Phase Is consistent with the 2005 ASTM standard would meet the AAI requirements.

Implications of the 2013 standard

The 2013 standard will not significantly change how Phase Is are performed, although it will change how the reports are written. The most notable changes relate to the characterization of different types of Recognized Environmental Conditions (RECs), the key determination of a Phase I. ASTM changed the definition of the REC to focus more on the presence or threat of a release of hazardous substances to the environment, rather than on the mere presence of hazardous substances at the property. ASTM also modified the definition of Historical Recognized Environmental Condition (HREC) from an amorphous statement of potential threats from historical practices to a more specific, detailed finding relating to impacts that had been previously identified and addressed to the satisfaction of environmental authorities without further or ongoing controls. This would include, for example, a release from an underground storage tank that had been completely remediated, with a No Further Remediation (NFR) letter issued by the environmental authority without any further restrictions on the use of the property (such as the maintenance of an engineered barrier).

Consistent with its revision to the HREC definition, ASTM added a definition for a Controlled Recognized Environmental Condition (CREC), which applies to releases or conditions that were addressed by leaving some portion of the contamination in place, and for which the environmental authority issued an NFR letter containing ongoing property use restrictions. Significantly, this finding does not require an evaluation of whether the property is actually complying with the pertinent restrictions.

ASTM also significantly modified the definition of “migrate/migration” to specifically reference the movement contaminants caused by soil vapor. This change was intended to require specific evaluation of the potential for vapor intrusion, in response to regulations and guidance requiring that issue to be addressed in remediation programs.

Because the EPA had recognized ASTM’s 2005 standard as meeting the requirements for AAI, the Agency had to determine how to respond to the new standard. Originally, the EPA simply recognized the 2013 standard as also meeting AAI, but this ran into objections from consultants and the ASTM. They argued that recognizing both standards would cause confusion and would discourage the industry from transitioning to the new standard. As a result, the EPA issued a final rule on Dec. 30, 2013, recognizing the 2013 standard as meeting AAI and stating that it plans to propose regulations in the future that would remove all references to the 2005 standard.

What does this new standard mean?

The meaning of ASTM’s revisions and the EPA’s reaction to them depends on how one views the use of Phase Is. Primarily, the purpose of the Phase I is to provide information to a potential buyer or lender regarding the potential for environmental contamination at a target property and the need for further assessment of environmental conditions. The most important issues are the ability and experience of the environmental professional performing the work and the delivery of a report documenting a comprehensive evaluation of the property, site records and other pertinent information. From this standpoint, ASTM’s revisions and the EPA’s actions are not especially meaningful.

Yet from the perspective that a Phase I assessment may be the key piece of evidence documenting the performance of AAI and establishing a basis for several defenses to CERCLA, these actions could be crucial. The revisions provide undoubted clarity in characterizing properties subject to different types of regulatory approvals. They should also: 1) refocus the ultimate determination of what constitutes a REC on those conditions, which requires further assessment, both by focusing on actual releases and threats of release; and 2) eliminate the use of HRECs to classify older conditions or activities that the environmental professional does not want to identify as RECs but is hesitant to dismiss.

From this perspective, the EPA’s actions are important as well. By committing to eliminate references to the 2005 standard in future rulemaking, the Agency ensures that environmental professionals will switch to the 2013 standard. Yet the EPA emphasizes that AAI requires compliance with its own regulations and shows unwillingness to allow the availability of the CERCLA defense to turn on the nuances between different versions of what is, after all, a private and proprietary standard.

From a practical perspective, counsel who obtain or review Phase Is should become familiar with the new standard and insist that it be referenced and used on all future Phase Is. They should also understand the continuing gaps and limitations to the standard and retain experienced and qualified environmental professionals.