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New Phase I ESA Standard to be Issued in November

New Standard Will Help Clarify Environmental and Historical Site Conditions For South Florida Developers

A new standard for performing Phase I Environmental Site Assessments (ESA) is expected to be released in November 2013 by ASTM, a standards development organization.  Phase I ESAs are the backbone of environmental due diligence for commercial real estate, including multi-family homes.  The new standard, which will be known as ASTM E1527-13, was prepared by a technical committee made up of environmental consultants, real estate and environmental attorneys, regulators, builders, lenders, and insurers.  The purpose of the Phase I ESA is to identify the presence of Recognized Environmental Conditions (REC) at the subject property.

The last revision to the Phase I standard was made in 2005 in response to amendments to the Comprehensive Environmental Response Compensation and Liability Act (CERCLA), which created new liability defenses under federal law.  The exercise of the “innocent purchaser” and the “bona fide prospective purchaser” defenses required that the purchaser conduct “all appropriate inquiries” prior to acquiring an interest in the real property.  The Phase I standard was developed to provide a checklist for ensuring that pre-acquisition environmental due diligence would satisfy the “all appropriate inquiries” requirement.

Use of New Standard Not Required

The United States Environmental Protection Agency recently issued a final rule approving the new Phase I standard, stating that effective November 13, 2013, compliance with the new Phase I standard will satisfy the requirement to conduct “all appropriate inquiries.”  Notably, the EPA rule does not require the use of the new standard, and makes clear that compliance with the prior Phase I ESA standard (ASTM E1527-05) continues to satisfy the “all appropriate inquiries” requirement.

Key Changes from Existing Standard

Some of the key changes from the existing Phase I ESA standard will include:

  • Clarifying revisions to the definition of a Recognized Environmental Condition.
  • Evaluation of potential migration of hazardous vapors onto the subject property based on existing data regarding the known presence of contaminants in the surrounding area.
  • Additional regulatory file review if the subject or adjoining properties are listed in public regulatory databases (the prior standard did not explicitly require such additional file review).
  • Additional discretion of the consultant to review Historic Recognized Environmental Conditions, including those which have been resolved to the satisfaction of the regulatory agency, to determine whether such conditions are a current recognized environmental condition.
  • Addition of the Controlled Recognized Environmental Condition, mean a condition that has been remediated to conditional closure (such as an engineering or institutional control).

The new standard will assist South Florida developers and property owners in providing a clearer picture of environmental conditions surrounding the site as well as historical conditions affecting the use of property.  These changes may also add to the cost and time for an environmental consultant to perform a Phase I ESA, particularly in the early days of adoption of the new standard.  Prospective purchasers should take this potential delay into account when negotiating due diligence time frames with sellers.