ASTM E1527 to clarify PFAS risks for commercial real estate purchasers and lenders

In December 2021, the American Society for Testing and Materials (ASTM) is expected to amend its Standard Practice for the Phase I Environmental Site Assessment Process, or ASTM E1527 Standard, by adding per- and polyfluoroalkyl substances (PFAS) to the list of Non-Scope Considerations.  The ASTM E1527 Standard was most recently revised in 2013.

The gold standard for environmental due diligence

The ASTM E1527 Standard is considered the gold standard for environmental due diligence and is relied upon by prospective purchasers of real property who are seeking protection from liability under the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) for pre-existing contamination. Prospective purchasers of contaminated properties are protected from liability under CERCLA if they meet certain requirements to qualify for “bona fide prospective purchaser” status, including conducting ''all appropriate inquiries,'' or AAI, regarding the history, use, and environmental condition of the property.[1]

The United States Environmental Protection Agency (EPA) has established requirements for AAI, including requiring prospective purchasers to retain an environmental professional to conduct a Phase I Environmental Site Assessment of the property in compliance with the ASTM E1527-13 Standard.

The ASTM E1527-13 Standard requires a Phase I to identify “recognized environmental conditions,” or “the presence or likely presence of any hazardous substances (as defined under CERCLA) or petroleum products in, on, or at a property.”[2] The ASTM E1527-13 Standard also provides a list of “Non-scope Considerations,” which are areas of optional environmental inquiry, such as substances not currently regulated as “hazardous” under CERCLA which are not explicitly required to be assessed in order to comply with AAI, but may help a prospective purchaser or other interested party navigate environmental risks related to a target property. Examples of the ASTM E1527-13 Standard’s current Non-scope Considerations include asbestos and mold.

ASTM-compliant Phase Is are also relied on by commercial lenders, insurance companies, parties receiving Brownfields grants, and persons seeking to demonstrate qualification for other CERCLA liability protections, including the contiguous property owner and innocent landowner defenses, and the bona fide prospective purchaser defense as it relates to tenants.

PFAS to be included in ASTM E1527 Standard’s Non-scope Considerations

Currently, PFAS are not regulated as hazardous substances under CERCLA and therefore are not required to be assessed in a Phase I pursuant to the ASTM E1527-13 Standard or AAI. Nevertheless, the upcoming inclusion of PFAS in the ASTM E1527-13 Standard’s list of Non-scope Considerations may offer some clarity to prospective purchasers, lenders, and other interested parties with respect to PFAS risks at a property.

The revisions to the ASTM E1527-13 Standard come at a time where federal and state legislative and regulatory initiatives are aggressively targeting PFAS.  In January 2021, EPA sought comment on whether it should designate perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS), two PFAS chemicals, as hazardous substances under CERCLA.

There have also been efforts in Congress to enact environmental legislation that would address PFAS.  In July 2021, the House of Representatives adopted HR 2467 (117th), which would establish national drinking water standards for PFOA and PFOS, designate PFAS as regulated chemicals, pollutants or “hazardous substances” under CERCLA, the Toxic Substances Control Act, the Clean Water Act, and the Clean Air Act, and implement other requirements. Many states have already promulgated environmental regulations that address PFAS, including drinking water standards, groundwater standards, and remediation and disposal requirements.

If and when PFOA and PFOS are designated “hazardous substances” under CERCLA, they will be required to be evaluated within the scope of the ASTM E1527-13 Standard. Prospective purchasers should therefore include PFAS as part of their environmental due diligence in states where PFAS regulations are already present or in anticipation of the likely listing of PFOA and PFOS as hazardous substances under CERCLA in the near future.

Additional revisions expected in upcoming ASTM E1527 Standard

The 2021 revisions to the ASTM E1527 Standard will likely also include:

• Clarifications to many definitions contained in Phase Is, including “Recognized Environmental Conditions,” “controlled Recognized Environmental Conditions,” “historic Recognized Environmental Conditions,” and “Significant Data Gaps”
• Updates to the Phase I site reconnaissance and historical research processes, including requirements to research historical uses of adjacent properties
• Updates to the environmental professional’s duties, including responsible charge obligations and
• Clarifications to how long a completed Phase I will be presumed to be valid.

The proposed revisions to the ASTM E1527 Standard will be submitted to EPA for verification that they meet the requirements for satisfying AAI and are expected to be finalized in December 2021.

To learn more about the implications of these developments for your business, please contact either of the authors or your DLA Piper relationship lawyer.