Environmental Site Assessment

Recent Changes to ASTM Standard 1527

Recently, ASTM International’s revisions to E1527-05 “Environmental Site Assessments: Phase I Environmental Site Assessment Process” included the following changes, resulting in the revised standard, E1527-13:

  1. The definition of “Recognized Environmental Condition (REC)” has been changed. The new definition of REC is: “the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property due to release to the environment; under conditions indicative of a release to the environment or under conditions that pose a material threat of future release. De minimis conditions are not recognized environmental conditions.”
  2. ASTM updated its definition of “Historical Recognized Environmental Condition (HREC).” The definition was revised to clarify that the scope and application of an HREC is limited to include only past releases that have been addressed to unrestricted residential use.
  3. ASTM added a definition of “Controlled Recognized Environmental Condition (CREC) to the standard.” This term was added to further clarify that “historical recognized environmental conditions (HRECs) describe conditions where past releases were addressed at a property to the level of allowing for unrestricted residential use. A “controlled environmental condition” describes the condition where previous releases at properties that underwent risk-based closures were addressed, but contaminants are allowed to remain in place under certain restrictions or conditions.
  4. ASTM added a clarification to the definition of “de minimis condition.” The revision makes it clear that environmental professionals should not use this term to describe a CREC. This revision provides the prospective property owner with added assurances that the Phase I will provide necessary and available information on past corrective actions conducted on the property and available information on contamination left in place.
  5. ASTM revised the definition of “migrate/migration” to specifically include vapor migrations. This revision clarifies that releases of contaminants that migrate via vapor in the subsurface or in soils are recognized environmental concerns.
  6. ASTM revised the standard’s definition of “release” to clarify that the definition has the same meaning as the definition of release in CERCLA. This clarification removes confusion that may have been caused by different definitions of “release” in the standard and in the CERCLA statute.
  7. ASTM revised the standard’s definition of “environment” to clarify that the definition has the same meaning as the definition of environment in CERCLA.
  8. ASTM revised the scope of the “User Responsibilities” section (section 6) to clarify which aspects of the site assessment investigation may be the responsibility of the user, or prospective property owner, or the user’s chosen representative, and not necessarily the responsibility of the environmental professional.
  9. ASTM added additional guidance at section 8.2.2, Regulatory Agency File and Records Review, of the standard to provide a standardized framework for verifying agency information related to information obtained from key databases.

    This additional guidance, and added framework for file and record reviews, clarifies that an environmental professional should make efforts to review and document the validity of information found from searches of agency databases. The result is expected to be an increase in validity of reports and an increase in the level of confidence that users, or prospective property owners, can place on site assessment results.
  10. ASTM revised the language in section 12.8 of the standard (Conclusions) to allow some flexibility with regard to the wording of the conclusion statement provided by an environmental professional as part of the assessment reports conclusion statement.

    The revised language allows either for the use of the suggested statements provided in Section 12.8.1 – 12.8.3 of the standard, or language similar to those statements. This revision will reduce confusion and increase the level of confidence that a user, or prospective property owner, can place in the report and that it is compliant with both the ASTM standard and the AAI rule.
  11. ASTM updated the information provided in the standard’s non-binding appendices. Appendices are non-binding and are provided for only for background information.


These revisions have no effect upon the requirements of the standard and no effect upon compliance with the AAI rule. Information provided in the appendices is provided only for background information for the environmental professional and users (prospective property owners).


Why should I have a phase 1 ESA completed?

If you purchase a property and a Phase 1 Environmental Site Assessment is not conducted prior to the purchase, Due diligence was not adequately completed.  This means that the buyer can be liable for all environmental issues and clean-ups of the property.  Items that could have been addressed by the seller or negotiated in the offer to purchase can go unaddressed until it is too late.  Then, the liability is passed on to the buyer. To protect their investment, banks typically require that a Phase 1 Environmental Site Assessment (ESA) be performed.

The goal of a Phase I is to identify Recognized Environmental Conditions (RECs). A REC is defined in the ASTM standard 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 on into the ground, ground water, or surface water of the property.”. Examples of conditions that constitute RECs include containers of stored hazardous materials, evidence of underground storage tanks, transformers which could contain PCBs, stained soil, distressed vegetation, pits, signs of fill or areas where wastes may be buried, etc. Many times the presence of a REC warrants further investigation to confirm or discount the presence of the material and quantify risk.

Conducting a Phase I Environmental Site Assessment (ESA) has become a common business practice for purchasers and lenders involved in commercial real estate. Completion of a Phase I ESA during the due diligence period can provide affected parties protection under the Innocent Purchaser Defense, CERCLA/SARA, providing that "all appropriate inquiry" was taken at the time of acquisition.


Key Points

Under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA), persons may be held strictly liable for cleaning up hazardous substances at properties that they either currently own or operate or owned or operated at the time of disposal. Strict liability in the context of CERCLA means that a potentially responsible party may be liable for environmental contamination based solely on property ownership and without regard to fault or negligence.

However, the CERCLA Brownfields Amendments provides three landowner liability exemptions: Innocent landowner Bona fide purchasers Contiguous property owners.

Generally, under the CERCLA Brownfields Amendments, the following conditions would minimize a purchaser's exposure to liability for past environmental contamination. The advantage for lenders is that these landowner exemptions protect the borrower and collateral in commercial real estate loans.

For the Innocent Landowner Exemption:
Did not cause or contribute to hazardous substances Property acquired by inheritance or bequest After completing All Appropriate Inquiries & ASTM E 1527 did not know and had no reason to know of "release or threatened release" at the time of acquisition

For the Bona Fide Purchaser Exemption:
Acquires ownership after 1/1/05 Hazardous substances released before purchase No potential liability or connection with Potentially Responsible Party other than through purchase agreement Rigorously completes All Appropriate Inquiries & ASTM E 1527 Appropriate care in dealing with hazardous substances Cooperates with regulatory agency's mandated remedial work, contractors, etc.

For the Contiguous Landowner Exemption:
Adjacent Property Owner Did not cause, contribute, or consent to release or threatened release After completing All Appropriate Inquiries & ASTM E 1527 did not know and had no reason to know of "release or threatened release" at the time of purchase No potential liability or connection with neighboring Potentially Responsible Party.

Key Difference: Petroleum
The basic difference between CERCLA All Appropriate Inquiries and the new ASTM E 1527-05 is the extent of the definition of hazardous substances. Under the petroleum exclusion of CERCLA Section 9601(14), petroleum and crude oil have been explicitly excluded from the definition of hazardous substances. However, ASTM E 1527 includes petroleum products because they are of concern in many commercial real estate transactions and current custom and usage is to include an inquiry into the presence of petroleum products in an environmental site assessment.


Phase I Transaction Screens vs.
Phase I Environmental Site Assessments


Environmental Bulletin


Financial institutions are currently conducting Phase I Transaction Screens for commercial transactions that do not require a full Phase I Environmental Site Assessment (ESA). While this has been beneficial aiding banks in satisfying due diligence requirements, the differences between the Phase I Environmental Site Assessment and the Phase I Transaction Screen have caused occasional confusion. In 1993, theAmerican Society for Testing and Materials (ASTM) promulgated two Environmental Standard Practices for Commercial Real Estate Transactions which have been widely accepted and adopted by financial institutions in the United States. There are several primary differences outlined by ASTM for the Transaction Screen and the Phase I Environmental Site Assessment.

What’s the Difference?

The most important difference is in regard to the content of the end product. The ASTM recommended format for the Transaction Screen consists of a 23 question checklist that provides only “yes”, “no”, or “unknown” responses to environmentally related questions for a property. In addition, the ASTM standard specifies that the user of the Transaction Screen must make the decision that a property is “clean” and that no further environmental assessment is warranted. The ASTM recommended format for the Phase I ESA Report includes provisions for a written report addressing environmental issues ranging from historic uses of a property to regulatory agency information. This format also includes provisions for Conclusions, Recommendations, Certifications, and Qualifications of the individual who is responsible for the report.

How Is Each Conducted

Another difference between the Phase I Transaction Screen and the Phase I ESA is the method required to perform the studies. The ASTM Standards specify that either the user or an environmental professional can complete the Transaction Screen Process. The Transaction Screen Process consists primarily of visiting a property, interviewing the owner, and visually identifying potential environmental concerns. Conversely, the ASTM Standards specify that Phase I ESAs must be completed by an environmental professional, and reports must contain clear conclusions with regard to the environmental conditions at a property.

The Phase I ESA process is much more detailed and consists of research, a site visit, and regulatory database searches. This difference in approach relates directly to the end result of either process discussed above. For example, at a property where there are preliminary indications of environmental concern, most banks are better served by a report prepared by an environmental professional with clear written conclusions, than with a checklist that does not have conclusions, and the input of an environmental professional who is comfortable deciding whether or not a property represents a significant risk.

When to Use Each

The ASTM Standards do not clearly set up a rationale for what property types should receive a Phase I Transaction Screen vs. a full Phase I ESA, and as a result, a number of financial institutions have created their own criteria. In many circumstances these criteria appear to be based on the amount of financing that is being considered for a property. From an environmental consulting perspective, it seems to make more sense to base this decision on property type and the potential liabilities that could be associated with a property. For example, a $500,000 loan to develop a portion of previously undeveloped farm land may represent far less risk and liability than a $50,000 loan to a gas station or a small industry.

Cost

Finally, costs and fees associated with performing a Phase I Transaction Screen vs. a Phase I Environmental Site Assessment are often a source of question. In the Western New York State market, fees for Phase I Transaction Screens typically range between $300 and $500. Fees for Phase I ESAs generally range from $1,000 to $2,000 and are based on the size and complexity of the property to be assessed.

Conclusion

The ASTM Transaction Screen can be a useful tool to quickly and cost effectively satisfy due diligence requirements for certain types of properties. However, banks should carefully select the properties that will receive Transaction Screens and must be prepared to make decisions and determinations based on very limited and often inconclusive results of the Phase I Transaction Screen process.

Transaction Screen (ASTM E1528)

The Transaction Screen Process is the simplest method of evaluating a property for environmental concerns; however, it does not provide EPA liability protection. The user of a property, his or her agent, or an environmental professional can conduct the transaction screen. The Transaction Screen Questionnaire guides the process, which includes:

Interviewing the owners and occupants of the property. The interview attempts to determine such things as whether the property or adjacent properties have been used for industrial activities or storage of hazardous materials, and whether any underground storage tanks have existed on the property. Observing the site in person to look for specific evidence of possible environmental contamination. Examples include stained soil, contaminated fill dirt, or fill and vent pipes associated with indications of underground storage tanks.

Researching government and historical records to identify potential sources of environmental contamination that could affect the property, and to look for evidence of past industrial activities. An environmental research service is often contracted to search state and federal databases for potentially contaminated sites near the property.

The greatest value of the transaction screen is probably as an initial investigative tool for less expensive properties. Someone involved in the sale – the financial institution, the buyer, or his or her agent – can complete the transaction screen. If no evidence of environmental concerns is found, this may provide enough assurance to the parties involved. On the other hand, the transaction screen may reveal information that should be investigated further by a trained environmental professional.