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Changes Coming Soon to a Due Diligence Project Near You!

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by Michael C. Ford

Changes are on the way for ASTM’s Phase I Environmental Site Assessment (“Phase I”) standard, the almost 30-year-old lynchpin of the transactional due diligence process.  The American Society for Testing and Materials (“ASTM”) – the group that publishes the Phase I standards under the designation “ASTM E 1527” – regularly reviews and updates its standards.  The current iteration – ASTM E1527-2013 – was first published in 1993, and was amended in 1994, 1997, 2000 and 2005.  The Task Group charged with developing the revisions to the standard has been meeting since the beginning of 2018.  Its objectives are to clarify existing language and to improve the utility of reports prepared in accordance with the standard.  The new version should be released before the end of 2021.

The DRAFT (!) language changes that have been proposed and that are under consideration include clarifying the definition of a Recognized Environmental Condition (“REC”) with respect to the “likely presence” of hazardous substances.  This issue creates a lot of confusion and debate in practice.  In an effort to better define what “likely presence” means, the proposed language provides a definition of “likely”: “that which is neither certain nor proved, but can be reasonably 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 therein.”  This definition appears geared toward requiring more deference to the determinations made by environmental professionals (“EPs”) and reducing the ability of report users (or their attorneys!) to challenge REC findings.

The new standard may also elaborate on the definition of an Historical Recognized Environmental Condition (“HREC”) to require EPs to include their rationale for concluding an issue qualifies as an HREC; to require EPs to review “reasonably ascertainable” information to support that the subject property meets “unrestricted use criteria,” as required to qualify as an HREC; and to clarify that new conditions such as a change in regulatory criteria or migration pathway not previously evaluated may render a former HREC a REC instead.

Similarly, the new standard may add similar requirements for Controlled Recognized Environmental Conditions (“CRECs”), requiring EPs to explain their rationale in designating a condition a CREC; to review “reasonably ascertainable” information to support that conditions have been addressed to the satisfaction of regulatory authorities with hazardous substances or petroleum allowed to remain in place; and to identify documentation establishing the applicable property or activity and use limitations.  The CREC provisions may also clarify that a CREC designation does not infer that the EP has evaluated the effectiveness of any land use controls, and that new conditions, migration pathways or regulatory standards may disqualify a condition from continuing to be classified as a CREC.

Additional changes under consideration include requiring title professionals to conduct AUL searches on behalf of EPs (an option if the user does not provide title information), various changes to the records review requirements (including with respect to historical research and adjoining properties), a definition of “significant data gap,” and clarification regarding when emerging contaminants (think PFAS and PFOS!) become subject to the Phase I standard.

Once the standard is finalized, ASTM will ask the Environmental Protection Agency to refer to the new standard in its regulations on “all appropriate inquiries” for transactional due diligence, anticipated to be some time in 2022.