There are several U.S. Environmental Protection Agency (USEPA) items currently running on parallel tracks. One is the new ASTM E1527-21 Standard and how that figures into All Appropriate Inquiries (AAI). The other is the consideration of certain per- and polyfluoroalkyl substances (PFAS) as hazardous substances. The question weighing heavily on the minds of many involved in property transfers is whether these issues will collide.
It certainly seems so.
On the one track, due diligence modifications could be here soon. In March 2022, the USEPA took direct final action to amend the Standards and Practices for All Appropriate Inquiries (AAIs) to reference the American Standard for Testing and Materials (ASTM) Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment (ESA) Process, specifically, the updated Standard known as ASTM E1527-21. ASTM E1527-21 provides updated guidance for conducting AAIs under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).
While the new standard was expected to take effect in May 2022, the USEPA withdrew the direct final rule after receiving feedback regarding whether the new standard should lead to termination of the previous ASTM E1527-13 Standard. The USEPA is expected to address these issues without a second public comment period.
The updated Standard was not originally intended to nullify its predecessor, ASTM E1527-13 Standard but to update what “good commercial and customary practice” for conducting Phase I ESAs means. After an initial round of public comment, the USEPA is now considering requiring use of the updated Standard in place of the current ASTM E1527-13, which would be a similar move to the prior transition from the -05 Standard to the -13 Standard.
E1527-21 was developed by the ASTM Committee E50 on Environmental Assessment, Risk Management, and Corrective Action. James Hogan of The ELAM Group served on the team of more than 150 professionals who assisted ASTM with the update.
“The E1527 Task Group has done a terrific job in maintaining this Standard over the years,” said James Hogan, CEO and president of The ELAM Group. “This crucial team, led by Julie Kilgore of Wasatch Environmental, plays an important role in assisting the USEPA, and really all entities, in dealing with the current state of affairs surrounding environmental due diligence. I look forward to the coming months as the interplay between the -13 Standard and -21 Standard becomes clear. Of course, PFOA and PFOS being considered as ‘hazardous substances’ weighs heavily on everybody’s mind as well – regulators, bankers, property owners, sellers, and consultants alike.”
What Hogan describes, of course, brings us to the other track where we find PFAS. As the USEPA continues its path toward implementing its PFAS roadmap, states are moving to follow suit. The looming CERCLA designations of PFOA and PFOS as hazardous substances will require responsible parties in all states to address them in some fashion.
As it relates to due diligence, these PFAS measures will eventually become a part of AAI if all goes as planned. If that happens, PFAS would then fall under the “hazardous substances” portion of the “petroleum and/or hazardous substances” considerations necessary for AAI. With these actions, PFAS will almost certainly become a significant factor in conducting commercial real estate due diligence.
But, as of this writing, no party is required to use the ASTM E1527-21 Standard, nor are PFOA and PFOS considered hazardous substances. This places those making important business decisions in a state of flux on both issues.
For Hogan, the drumbeat gets louder each month.
“More and more, funding sources and Users of Phase I ESAs are asking questions like, Do I satisfy AAI if I have PFAS on my property but didn’t evaluate them? Or What type of cost are we talking for a Phase II ESA to add PFAS? Or How do we incorporate PFAS into our due diligence program? Or Do we need to incorporate the -21 Standard yet?,” says Hogan.
When potential property owners are selecting between utilizing either ASTM E1527-13 or ASTM E1527-21, Hogan points out the -21 Standard doesn’t really differ from the -13 Standard regarding PFAS being a non-scope item. The -21 Standard does touch on PFAS in that it is used as an example of an “emerging contaminant” that is excluded from the scope of the Standard. Should any PFAS, or any other emerging contaminant become a hazardous substance, it would then fall within the scope of the Standard.
Although PFAS evaluation is currently not required for use in Phase I ESAs to satisfy AAI, entities may wish to incorporate such evaluation as a part of their due diligence. With the USEPA’s move to list the two most commonly-found PFAS, PFOA and PFOS, as hazardous substances under CERCLA by summer 2023, it could be awhile before both compounds become in-scope items. Should that occur, contamination involving PFOA and PFOS will no longer be a non-scope consideration but rather a recognized environmental condition (REC) that must be evaluated when conducting AAI.
While additional cost and time will be associated with this additive level of due diligence, users should understand that the projected collision course of PFOA and PFOS into AAI likely has larger implications on their business decisions than the migration of the ASTM Standard from -13 to -21. Evaluating now may allow users with low risk tolerance to step away from a PFAS-contaminated property.
So what is the answer to the question at the outset?
“There is no good answer,” says Hogan. “Dabbling into this gray area requires a business decision, and that decision should be based on at least three things: user risk tolerance, sound legal advice, and consultant rigor in outlining the risks.”
Questions? Contact James Hogan at The ELAM Group: [email protected]
