As a purchaser, undertaking environmental due diligence at the start of a real estate transaction continues to be important. A purchaser must establish all appropriate inquiry (AAI) to be eligible for certain defenses against environmental liability under CERCLA. Phase Is are an integral part of transactions and are often required by lenders. There is a new rule impacting Phase I reports and AAI.
The new rule, found at 40 CFR 312 effective February 13, 2023, incorporates the new ASTM International E1527‑21 standard as one of four standards upon which prospective purchasers may rely to satisfy AAI. See 40 CFR 312.11 and 87 FR 76578. Parties may continue to follow the regulatory requirements for AAI, use the prior ASTM E1527‑13 standard (still used by Indiana’s Brownfields Program) until February 13, 2024, or use the ASTM E2247‑16 standard (for forestland or rural property).
The 2021 standard encompasses everything in the 2013 standard, but adds:
- PFAS- Adds per- and polyfluoroalkyl substances (“PFAS”) to the existing common non-scope issues portion of the standard. PFAS are “emerging contaminants” that EPA has proposed reporting and recordkeeping requirements. Non‑scope items are not “hazardous substances” regulated by CERCLA but may present environmental business risks (“BERs”) associated with a property, like asbestos-containing materials, lead-based paint, and mold.
- RECs- Clarification of the definition of a Recognized Environmental Condition (“REC”) and related terms.
- Historical Research- Increased historical review of adjoining properties, not just the subject property required by the 2013 standard. This review includes four “standard historical resources” at five-year intervals: (1) aerial photographs, (2) fire insurance maps, (3) local street directories, and (4) topographic maps. If general use of a property has been retail, industrial, or manufacturing, then additional historical records may need to be reviewed.
- Title Search- User must review land title and judicial records (or rely on a title search) back to 1980 (the 2013 standard has no set date) for restrictions and environmental liens and activity/use limitations (“AUL”) imposed due to the presence of hazardous substances or petroleum products.
- Site Reconnaissance- More-detailed site reconnaissance required, including new requirement to observe adjoining properties and the surrounding area.
The ASTM standard and AAI requirements are detailed, and missing just one requirement could result in losing a defense to CERCLA liability.