On August 15, 2013, EPA issued a proposed rule for public comment and a parallel direct final rule to amend the All Appropriate Inquiries (AAI) Rules, 40 C.F.R. Part 312. The proposed rule seeks to incorporate the American Society for Testing and Materials' (now ASTM International's) revised Standard E1527, "Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process," into the AAI Rules. ASTM published the current standard, E1527-05, in 2005. The revised standard, which ASTM will publish when the final rule is promulgated, will be designated as E1527-13. EPA's proposed rule and the revised ASTM standard raise new questions for buyers and sellers in real estate transactions, landlords and tenants, lending institutions, insurers, environmental consultants and others in the regulated community that rely upon Phase I environmental site assessments.
In issuing the direct final rule in tandem with the proposed rule, EPA anticipated limited controversy and negative feedback during the public comment period, which began on August 15, 2013 and ends on September 16, 2013. Had EPA not received adverse comments, the direct final rule would have been effective November 13, 2013. However, because EPA has already received at least one comment in opposition to the proposed rule, it will withdraw the direct final rule, address all comments it receives and publish a subsequent final rule. EPA hopes to publish the new final rule later this fall. The timeframe will depend in large part on the volume of comments the agency receives.
Choice Between E1527-05 and E1527-13
Parties conduct Phase I site assessments for many reasons, including to evaluate risk as part of the real estate due diligence process. Under the current AAI Rules, parties that comply with ASTM E1527-05 may satisfy the AAI requirements to establish defenses under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), including the bona fide prospective purchaser, innocent landowner and contiguous landowner defenses.
According to the proposed rule, E1527-13 would not replace E1527-05. Instead, both standards would be included, permitting parties to use either standard to satisfy the AAI requirements. Allowing parties to choose between the old and new standard raises an obvious concern. The 2013 standard contains new and revised language that could result in more comprehensive site assessments. Parties planning to conduct Phase I assessments would need to consider which version of the standard better suits their needs. Of course, allowing a party to choose could result in disputes as to which standard is acceptable, especially in real estate or corporate transactions where opposing sides often have conflicting priorities. It could also lead to disputes between the user of the assessment and the consultant if the old standard is used and a concern is missed that may have been detected had the consultant used the new standard.
Summary of Changes to E1527-13
ASTM 1527-13 contains a number of revisions that may impact how environmental professionals (EPs) conduct Phase I site assessments as well as the substance of Phase I reports. Although there are a number of minor changes, the most significant changes fall into three categories.
- New and Revised Definitions of Recognized Environmental Conditions
Recognized Environmental Conditions (RECs): E1527-13 revises and clarifies the definition of a REC. RECs are defined in E1527-05 as "the presence or likely presence of any hazardous substances or petroleum products on a property under conditions that indicate an existing release, a past release, or a material threat of a release of any hazardous substances or petroleum products into structures on the property, or into the ground, ground water, or surface water of the property...."
Under the 2013 standard, RECs are defined as "the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property: (1) due to release to the environment; (2) under conditions indicative of a release to the environment; or (3) under conditions that pose a material threat of future release to the environment." The revisions incorporate language from the AAI Rule regarding the scope and purpose of conducting all appropriate inquiries (to identify conditions indicative of releases or threatened releases, as defined in CERCLA, of hazardous substances, as defined in CERCLA). The changes could be construed as narrowing the scope of RECs under the 2013 standard by excluding releases into structures on a property, which are not releases under CERCLA but may be RECs under the 2005 standard.
Historical RECs (HRECs): Under E1527-05, HREC is "an environmental condition which in the past would have been considered a REC, but which may or may not be considered a REC currently." HRECs under the 2005 standard include releases that were remediated, where the remediation was acceptable to the responsible governmental agency. The 2005 definition of HREC does not consider what remediation standards the regulating agency accepted or whether the approval included site restrictions or controls.
In contrast, E1527-13 redefines and limits HRECs to past releases that have been remediated to the satisfaction of a regulatory agency or to unrestricted residential use criteria, without any restrictions or engineering/institutional controls. For sites where remediation has occurred but contamination remains in place, E1527-13 creates a new term, "Controlled Recognized Environmental Condition."
Controlled RECs (CRECs): This new REC designation would be used for sites that undergo risk-based closure, where the release has been addressed to the satisfaction of a regulatory agency (e.g., by issuance of an NFA letter) but contaminants are left in place with restrictions or conditions. Issues that were deemed to be HRECs under the 2005 standard may be designated CRECs under the revised standard if subject to a risk-based remediation.
- Focus on Vapor Intrusion
In recent years, vapor intrusion risks at sites have become a widely recognized and publicized area of concern. Consistent with this trend, E1527-13 revises the definitions of the terms "migrate/migration" and "release" to include the movement of hazardous substances through vapor in the subsurface. In comparison to E1527-05, which excluded indoor air concerns, the new standard will require EPs to consider vapor intrusion risks and will likely cause EPs to designate more vapor intrusion issues as RECs.
- Regulatory Agency File Reviews
Section 8 of the new standard now describes how EPs should conduct regulatory agency file reviews, and requires EPs to make efforts to review and document the information discovered in agency database searches. E1527-13 also places increased focus on file reviews of adjacent properties. While regulatory file reviews are common practice for the subject site under E1527-05, the new standard would require similar reviews for adjoining properties. The additional time needed to obtain and review files for offsite properties may increase the cost of a Phase I project. More significantly, the additional review required could extend the time needed to complete a site assessment, potentially delaying the closing of deals. As with the 2005 standards, EPs may still exercise discretion for when a file review is needed, but the new standard requires EPs to provide a more detailed explanation for whether a file review is warranted.
The proposed AAI rule change and new ASTM Phase I standard have created a great deal of public interest. If EPA receives enough negative comments, the agency could reconsider allowing parties to choose between E1527-05 and E1527-13. Whether E1527-13 becomes a new AAI alternative or replaces the 2005 standard, the 2013 standard will affect the preparation and use of environmental site assessments.