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Commercial Property

With the recent 2021 updates to the 2013 version of the ASTM E1527 Phase I Environmental Assessment (ESA) standard, we took this opportunity to review the standard as well as discuss the use of the standard outside the U.S.

In a recent Inogen Alliance webinar, Antea Group USA due diligence experts Matt Bell, Adam Clements, Ed Petrie, and Karen Thole helped us understand the ASTM Phase I ESA Standard and how to successfully apply it outside of the US.

Why Phase I?

To review, the term “Phase I ESA’ was first coined back in the 1980s with the development of the Comprehensive Environmental Compensation and Liability Act (CERCLA), also referred to as “Superfund”. After a period of the “wild west” during the 1980s in which there was no standard approach to conducting Phase I ESAs, a more universally accepted standard was developed by ASTM in the early 1990s. The standard evolved from there, and in the early 2000s, was advanced to meet the All Appropriate Inquiry (AAI) rule which was promulgated in 2005 to provide Legal Liability Protections (LLPs) from Superfund liability in the U.S. The standard is updated every eight years with the most recent updates made in 2021.

There are many reasons why a client or consultant may seek out a Phase I ESA. They may want to include it as part of a more comprehensive due diligence program, it could be a requirement of their bank, there is no other applicable standard to use, or they simply feel that a Phase I will be their best protection against environmental risk and liability. No matter what their reason, we must clarify the expectations between consultants and clients and set a clear scope for the due diligence program.

Where Does a Phase I Fit Within Due Diligence?

Within the scope of a broader due diligence program, there are four key focus areas:

  1. Subsurface;
  2. Infrastructure;
  3. Operations; and,
  4. Business.

The ASTM E1527 Phase I ESA standard only covers subsurface issues, meaning the other three focus areas are essentially referred to as “non-scope considerations” by the standard. An ASTM report is very structured, and not always the most business-friendly option with how narrow the scope is. You are, however, allowed to include non-scope items in the report which gives you the flexibility to add some other topics that may need addressing in addition to what is covered by the basic standard.  Sometimes however, a more complete and broader assessment of risks and liabilities may be necessary to better characterize the potential exposures associated with a potential acquisition. To do this, it is best to agree on what risks are of most concern to the transaction and develop a deliverable separate and apart from the Phase I ESA report. This can allow for a more open discussion of risks and liabilities than perhaps the structure of an ASTM Phase I ESA report allows. All considerations, both within and outside of the standard, should be decided between the consultant and the client before the site assessment begins.  

Applying the ASTM E1527 Outside the US

When applying this standard outside of the US, there are several factors that will not apply or will require modification based on the country. For example, the standard was developed around the United States Environmental Protection Agency (USEPA) list of hazard substances defined under CERCLA. So, when applying the standard outside of the US, you must decide whether you will follow the USEPA list of hazardous substances, or perhaps create a list of what you define as hazardous substances in your country and use those in the application of the standard. When preparing the final report, it will note that it was prepared “as modified based on in-country standards”, with the specific intentions articulated.

Depending on what country you are in, you will likely have to adapt the information in your report to ensure that it covers the standard to the best of your ability. These adjustments are defined as deviations. All deviations should be listed individually and in detail - list what was used to replace standard sources, what part of the standard were you not able to meet, and how are you adjusting. This is where you include any restrictions imposed as part of the transaction that may impact the report as well. For example, if certain interviews were not allowed due to confidentiality reasons, we must acknowledge this and explain why.  

As another example, if you find you must adapt physical setting information, identify another source that can help you gain an understanding of the physical history or development of the area. This could include physical setting sources on local or regional geology, hydrogeology, hydrology, or topography maps and information.

The most important thing to remember is that if the information is not available in your location, do not delete that section of the report. Simply adjust and include a statement about what information is available and how it applies to that section of the report.  A report that deviates from the standard,  but does not cite the specific deviations, does not meet the requirements of the ASTM standard.

2021 Standard Updates

The most recent updates to the ASTM Phase I ESA standard do not fundamentally change the way reports are filed. The changes are made with the goal of clarifying the existing standards and providing more consistency across reports.

Definitions and Terminology

The Recognized Environmental Condition definition has been updated, moving the term “likely” within the definition:

“(1) the presence of hazardous substances or petroleum products in, on or at the subject property due to a release to the environment; (2) the likely presence of hazardous substances or petroleum products in, on or at the subject property due to a release or likely release to the environment; or (3) the presence of hazardous substances or petroleum products in, on or at the subject property under conditions that pose a material threat of a future release to the environment.”

The standard will now require the use of the term “Subject Property” to refer to the property that is the subject of the assessment. This requirement will help maintain consistency and clarity across reports.

Phase I ESA Shelf Life

Also, take note of the shelf life of Phase I ESA – it will remain viable if it was completed no more than 180 days prior to the date of acquisition, or up to one year, if certain components of the Report have been updated (i.e. interviews, searches for recorded environmental cleanup liens, review of government records, site reconnaissance of the subject property and the Environmental Professional Declaration).

Historical Sources

The updated standard now requires more specificity in certain areas. For example, historical aerial photos, city directories, topographical maps, and fire insurance maps are now specifically required items in the new standard. Previously the definition was up to the discretion of the environmental professional conducting the assessment.

The new standard also requires you to be more specific in defining the nature and use of adjacent properties. For example, if the neighboring property is a strip mall, you must now specify all of the businesses operating within the strip mall.

Emerging Contaminants

The updated standard also provides guidance on how to approach emerging contaminants, such as PFAS. Since the EPA has not yet listed PFAS as a federally regulated hazardous substance, it is not required to be included in the scope of ASTM Phase I ESAs. However, emerging contaminants can be included in the non-scope considerations to provide a more complete assessment.  

Additional Updates

Other notable updates include an added flowchart to help define REC, CREC, and HREC correctly, a greater focus on significant data gaps, photo requirements, and that interviews are now classified and grouped with historical research.

At the end of the day, consultants and clients should be having meaningful discussions to determine the best course of action for the project. It may not always be in the project’s best interest to use the ASTM Phase I ESA, sometimes a broader due diligence scope will be more beneficial. The key is to work with the client to understand their needs and modify the scope of the work accordingly.

For more on Due Diligence and the ASTM Phase I ESA Standard, contact our experts today.

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