Prospective purchasers of real estate are familiar with the concept of obtaining an Environmental Site Assessment Phase I Report as part of their due diligence in purchasing real property. Environmental consultants complete those reports to meet requirements set out in an ASTM Standard. Beginning December 30, 2013, environmental consultants may choose between two ASTM Standards to conduct this due diligence. In the near future the EPA will eliminate the older Standard, leaving only this newer Standard as the only option. So let’s take a look at this new Standard and understand what it practically means for buyers and sellers of real estate.
The owner of real estate is ultimately responsible for the environmental condition of that property, even if that owner didn’t cause the contamination. If the property was contaminated by someone else, the owner’s unfortunate remedy is to sue the responsible party under state or federal law. These lawsuits are generally more in the nature of reimbursement mechanisms for owners to recoup remediation expenses, because the damages generally include the cost to remediate the property, which cannot be known until the property is remediated.
It has to be this way because the order from the EPA or TCEQ is to “Fix the property.” That can only be done by the party with the legal right to access and change the property, which is the owner. Granted, the owner could grant another party permission, but they aren’t required to, and if the law did require permission it just might cause a “taking” for which the government would have to pay just compensation. Keeping current owners liable sidesteps all these thorny issues.
But there’s a safe harbor available to buyers. A buyer can eliminate its liability for prior contamination of real property, under CERLA and certain state laws, by conducting “all appropriate inquiries” before buying the property. If the inquiry does not identify any recognized environmental condition, then the buyer receives protection from liability for prior contamination of the purchased property, should prior contamination later be found.
ASTM International is a non-profit organization that develops international voluntary consensus standards, test methods, specifications, guides, and practices to improve product quality, enhance safety, facilitate market access and trade, and build consumer confidence. To date it has developed more than 12,000 standards compiled in an 80-volume Annual Book of ASTM Standards. Government agencies around the world selectively reference them in codes, regulations and laws. In the US, the EPA references some of these standards in its regulations, thereby changing their nature from voluntary, to required. Such is the case when a buyer seeks to avoid liability for potential prior contamination of real property, by conducting due diligence of that property before buying it.
In 2006 the EPA adopted ASTM International’s Standard E1527-05 as the standard environmental consultants had to meet when conducting “all appropriate inquiries” (40 CFR 312). But on December 30, 2013, the EPA adopted a second ASTM International Standard that environmental consultants can use to conduct “all appropriate inquiries”, effective immediately. The EPA also formally stated that it intends to eliminate the older Standard E1527-05 in the near future, but at the moment there are 2 standards available, at least in theory. Not surprisingly, EPA strongly encourages buyers to only use the new standard, and the conservative approach is certainly to do so.
In the broadest view, the new standard will have three major effects: (1) some Phase I ESA’s will cost more; (2) some Phase I ESA’s will take more time to complete; and (3) all Phase I ESA’s will use some new and differently defined terms, so they will read (and be interpreted) a bit differently.
Causing the increased cost and time to complete is the new standard’s requirement that consultants review in much more detail agency records for properties (or adjacent properties) that have a remediation history. Previously, if a site had been remediated in a formal process and “closed” by the TCEQ or EPA, the consultant would basically check a box and move on. Now, the consultant will have to review the agency file and not rely on a “closure” to mean “no problems here.”
So what I expect my clients to see now is a set fee for a standard Phase I, with additional charges for TCEQ file reviews when required. This means the actual cost of a Phase I that requires a review of TCEQ files won’t be fixed until after the consultant has reviewed the necessary files. And since access to those files is controlled by the TCEQ, simply gaining access will take more time, and so it will be tough to predict how much time file reviews will take to begin, and complete. It is my understanding that Phase I project costs under the new standard could range from the mid $2,000s to the $4,000s for a standard report, with much higher costs for properties with extensive environmental remediation histories.
There there’s vapor intrusion. With this new standard the EPA has made it very clear that all appropriate inquiries includes consideration of vapor intrusion issues. But EPA also said, to the apparent surprise of some, that the old standard already required identification of potential vapor releases or vapor migration. This raises the specter of malpractice claims for consultants who did not consider vapor intrusion pathways, and potentially puts at risk liability protections of owners who relied on those Phase 1 reports.
There’s a new definition for “Controlled Recognized Environmental Condition”, to describe conditions where past releases were remediated with risk-based closures. In a risk-based closure some contaminants are allowed to remain in place at the property under certain restrictions or conditions. The TCEQ’s risk based closure system is called the “Texas Risk Reduction Program” (TRRP, pronounced “TERP”). These closures are no longer “de minimus conditions” as they were under the old standard. And this is where things could get tricky.
The potential for the increased identification of Recognized Environmental Conditions, Historical Recognized Environmental Conditions, or Controlled Recognized Environmental Conditions, plus the greater focus on vapor intrusion, leads to the risk of increased scrutiny by lenders and the potential for more recommendations to conduct follow up Phase II site investigations to evaluate the various Recognized Environmental Conditions identified in a Phase I ESA. The risk of increased scrutiny and follow-up is particularly likely to arise in the context of vapor intrusion and indoor air quality which are hot topics at many regulatory agencies across the nation.
One thing I think can be said at this early stage of this new standard. The value of choosing a good environmental consultant just went up. And by “good” I mean conscientious, knowledgeable, shrewd, and wise.
For a more detailed list of changes brought about by ASTM Standard, E1527-13 prepared by the McPherson LawFirm, PC, please send me an Email.