A Transaction Screen May Be Preferable To A Phase I Environmental Site Assessment

October 2001

In the coming days Congress is expected to enact, for the first time, statutory authority clarifying what deems a person to have undertaken all appropriate inquiry to satisfy a defense to Superfund (CERCLA) liability. A “Transaction Screen” may well satisfy the appropriate inquiry standard.

Transaction Screen is a term of art for a procedure intended for use on a voluntary basis by individuals who wish to assess the environmental condition of commercial real estate with respect to the range of contaminants within the scope of Superfund liability and petroleum products.

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Superfund Sites

A historic settlement announced today with the Kerr-McGee Corporation and certain of its affiliates and their parent Anadarko Petroleum Corporation will greatly benefit environmental cleanups at superfund sites and reimburse the federal government for substantial cleanup costs. The defendants agree to pay $5.15 billion to settle the case, of which approximately $4.4 billion will be paid to fund environmental clean-up and for environmental claims. This is the largest environmental enforcement recovery ever by the Department of Justice.

Amended All Appropriate Inquiries (AAI) Rule

National – On December 30, 2013, the U.S. Environmental Protection Agency (EPA) amended its All Appropriate Inquiries (AAI) Rule, codified in 40 CFR Part 312, to include a specific reference to the updated ASTM International Standard E1527-13 for Phase I Environmental Site Assessments (ESA). The amendment establishes that compliance by qualified “environmental professionals” with the requirements of E1527-13 will constitute compliance with specific requirements of the AAI Rule and help to establish certain defenses to liability under the Comprehensive Environmental Response, Compensation & Liability Act (CERCLA).

ASTM E1527 Standard Steps Closer to Revised Version

A month and a half after the close of voting on a revised version, the ASTM E1527 Phase I Environmental Site Assessment Standard is getting closer to being issued with changes for 2013. In October, the task group met at ASTM Committee Week meetings in Atlanta, GA. to discuss negative votes and comments on a ballot issued in September. During the meeting, the group of about 50 environmental professionals, users of Phase I ESAs and industry observers reviewed 17 negative ballots and about 30 affirmative ballots with comments. By the close of the meeting, most points outlined in the negative votes submitted had been resolved through editorial changes and consensus-making. The group’s leadership was then tasked with working with those who submitted the remaining negative votes in an attempt to resolve their issues or convince them to withdraw their negative votes.

As of mid-November, the task group had made great progress towards reaching a final version of the standard, but several negative votes remained. The group is now preparing to pursue the “non-persuasive” process. This allows the standard writing committee to keep the consensus-based ASTM process moving when outliers disagree with the majority of members. In order to find a negative non-persuasive, two-thirds of the committee members must vote in favor of the non-persuasive motion.

Task group leadership does expect the non-persuasive votes to affirm the current redline of the standard, and if all goes according to plan, the new ASTM E1527-13 standard should stay on track for spring 2013 publication.

Likely Changes to ASTM E1527

  • REC & HREC definitions revised and new term, “CREC” or Controlled REC, added
  • Vapor Migration clarified as included in Phase I ESA investigations and ASTM E2600-10 referenced
  • Regulatory File Review specifically detailed in a new subsection
  • Revisions to User Responsibilities section, particularly surrounding environmental lien search requirements
  • Changes to appendices, especially the Table of Contents/Report Format Appendix and Legal Appendix

ASTM E50 Committee Convenes on E1527 Revisions

On Wednesday, April 18, an ASTM E50 task group consisting of environmental consultants, lenders, attorneys, EPA and other interested parties met in Phoenix, AZ to discuss revisions to the ASTM E1527-05 Phase I Environmental Site Assessment Standard. The last time the standard was updated was in 2005, when EPA released the details of its All Appropriate Inquires Rule, which cites the current standard as “at least as stringent” as EPA’s rule. According to ASTM bylaws, standards must be updated and reissued every eight years to avoid sun-setting and becoming invalid. A task group formed in 2010 and has since issued two revised versions to sub-committee voting.

In the most recent draft of the standard, the task group has proposed several changes to the standard, most intended to be clarifications rather than changes to industry practices. These proposed revisions include:

  • Clarification about when an Agency File Reviews should be conducted as part of a Phase I ESA. The task group’s goal is to create greater consistency without adding undue burden on professionals.
  • Introduction of a new term, Controlled Recognized Environmental Condition, which would cover past contamination to soil and groundwater that has previously been remediated. A CREC would be distinct from a Historical Recognized Environmental Condition (REC) and a REC.
  • Reference to the ASTM E2600-10 Vapor Encroachment Screening Standard and explanation that vapor plumes should be treated as any other source of contamination would be treated within the Phase I ESA.

Commercial Lenders Put More Emphasis on Environmental Due Diligence

Commercial real estate lenders are putting more emphasis on environmental due diligence now than ever before, according to two surveys conducted by EDR in August 2007 and January 2008. Banks conduct environmental due diligence primarily to protect their bottom lines from collateral loss and protect their institutions from the direct liability associated with environmental issues.

Innocent Landowners Defense Under CERCLA Regulations

In order for a property owner to claim the “innocent landowners defense” under the CERCLA regulations they must first complete “due diligence” when investigating the environmental history of a piece of property. Persons who complete this due diligence must be properly certified and have adequate experience to do this type of investigation. These studies must also comply to the ASTM E 1527-00 standard for environmental site assessments as well as the new EPA rule of “All Appropriate Inquiry” standards made into law on January, 2002. Cutting corners when choosing your environmental professional could leave you unable to use the innocent landowners defense under CERCLA and financially responsible for any environmental contamination discovered on your property.

New Regulations for Commercial Property Owners

Beginning November 1, 2006, every commercial real estate transaction will be subject to new federal regulations that real property purchasers conduct a comprehensive non-intrusive environmental site-assessment. Although it has long been prudent practice to obtain a Phase I report, the new federal rules now make it mandatory to qualify for one of the CERCLA defenses.

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