Through November of 2021, over 300,000 Phase I Environmental Site Assessment (ESA) Reports have been prepared in the United States in connection with the sale, purchase, financing, and development of commercial real estate. The primary purpose of conducting a Phase I ESA is to identify whether there are Recognized Environmental Conditions (RECs) in connection with a property being investigated.
With the release of its updated Standard Practice, ASTM E1527-21, the American Society of Testing and Materials (ASTM) offered several significant changes. One of the most overlooked yet potentially significant changes involves the definition of a REC.
Under the previous ASTM standard, ASTM E1527-13, a REC was defined as:
“the presence or likely presence of any hazardous substances or petroleum products in, on or at a property: (1) due to a release to the environment; (2) under conditions indicative of a release to the environment; or (3) under conditions that pose a material threat of a future release to the environment.”
Note that this definition includes “the presence or likely presence of contamination,” not the certainty of contamination. This language leaves the term open to interpretation and may not be applied consistently by Environmental Professionals from one company to another, or from one area of the country to another. Untrained users of Phase I ESA’s often think of a “clean Phase I report” as one that did not identify RECs. Alternatively, they may think of a Phase I with RECs as a property that is “contaminated.” While this may be the case, in practice it’s not nearly as black and white as some may think.
For instance, a property containing a commercial dry-cleaning business has a very high likelihood of having experienced a release of the hazardous substance Perchloroethylene to the environment, and most environmental professionals (EPs) would conclude that the presence of dry-cleaning operations at a property constitutes a REC. Yet it is possible that a subsequent Phase II ESA will be conducted that includes the collection of soil and groundwater samples for analysis at a laboratory that reveals no evidence of actual contamination. Was the Phase I ESA wrong to identify the dry-cleaning operation a REC? The answer is, “No,” because the definition of a REC includes the concept of the likely presence of contamination, not its certainty.
In contrast, the new ASTM standard now defines a REC as:
“(1) the presence of hazardous substances or petroleum products in, on, or at the subject property due to a release to the environment; (2) the likely presence of hazardous substances or petroleum products in, on or at the subject property due to a release or likely release to the environment; or (3) the presence of hazardous substances or petroleum products in, on or at the subject property under conditions that pose a material threat of a future release to the environment.”:
Note that the catch-all sentence before the three numbered phrases has been removed. Now under phrase (1), there actually must have been a release of a hazardous substance or petroleum product, not merely a “likely” release.
The word “likely” now only applies to phrase (2), and to assist EPs in identifying RECs, the new E1527-21 Standard includes a note that defines the word “likely” as a condition “which is neither certain nor proved, but can be expected or believed by a reasonable observer based on the logic and/or experience of the environmental professional, and/or available evidence, as stated in the report to support the opinions given.”
This means that if an EP concludes that a REC is present due to the likely presence of a release of hazardous substances or petroleum products, they are bound to include in the findings and opinions section of the report their rationale for making that conclusion. The conclusion must be based on the observations and experience of the EP as to why they believe that a release is likely. The EP should no longer simply declare that something is likely, which we find some EPs do as a matter of laziness or as a CYA exercise without conducting a thorough analysis of the facts.
Lastly, under phrase (3), it is no longer acceptable to conclude that it is likely that there are hazardous substances or petroleum products present under conditions that represent a material threat of a release. Hazardous substances or petroleum products must actually be present under those conditions.
Beyond the new definition of a REC, there are numerous other revisions and improvements intended to make the practice easier to follow, and to improve the industry wide consistency and quality of Phase I ESA reports. This article outlines some of the most significant modifications: https://www.natlawreview.com/article/new-astm-e1527-21-standard-practice-phase-i-environmental-site-assessments-esa.
At Brickhouse, we welcome the revisions, and believe that in practice, the new standard will raise the bar by forcing EPs to be more thoughtful in conducting all appropriate inquiry investigations. We are also optimistic that it will be less likely that EPs will misidentify RECs or conclude that a REC is present out of an abundance of caution. After all, just because something is possible does not make it likely.
About the Author: Paul White is a licensed Geologist and Environmental Professional with over three decades of experience conducting environmental site assessments in connection with commercial real estate transactions.