ESA Standards Get a Makeover

• By Michael E. Covert, P.G.
• Apr 01, 2001

The Fourth Edition of the Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process (ASTM E 1527-00) was recently published (in July 2000) by the American Society for Testing and Materials (ASTM) Committee E-50 on Environmental Assessment. The 2000 Standard incorporates three important new terms identified as: 3.3.7 business environmental risk, 3.3.16 historical recognized environmental condition and 3.3.23 material threat. These new terms may have a profound impact on the opinions and conclusion an environmental professional (EP) must include when preparing a Phase I Environmental Site Assessment (ESA) in accordance with ASTM E 1527-00. Furthermore, these terms serve to focus the user when attempting to quantify its "risk tolerance" in connection with the acquisition of a parcel of commercial real estate.

Prior to discussing the significance of these new terms, it is important to reflect upon the purpose of E-1527 which has not changed, and defines good commercial and customary practice in the U.S. for conducting an environmental site assessment of a parcel of commercial real estate with respect to the range of contaminants within the scope of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), also known as Superfund, and petroleum products.

The concept that there could be a so-called "innocent landowner defense" (ILD) to CERCLA liability is provided in 42 United States Code (USC) § 9601(35) and § 9607(b)(3) and was included as part of the Superfund Amendments and Reauthorization Act (SARA) of 1986. The E 1527 Standard merely attempts to codify a number of tasks that, when considered in concert with each other, may satisfy one of the requirements to qualify for the so-called innocent landowner defense to CERCLA liability (i.e., "all appropriate inquiry into the previous ownership and uses of a property consistent with good commercial or customary practice in an effort to minimize liability." (§ 9601(35)(B)). Put another way, it is important that users recognize that E 1527 represents a minimum standard of inquiry that addresses the very narrow issues associated with the release of CERCLA hazardous substances or petroleum products on a parcel of commercial real estate.

Business Environmental Risk

As users (e.g., a purchaser, tenant, owner, lender, property manager, etc.) began to incorporate an ESA as part of their due diligence activities, there was a misguided tendency to consider a concluded ESA that found no recognized environmental conditions (RECs), as is adequate in addressing the spectrum of potential concerns of environmentally-driven consequences to a real estate transaction. To remind Users of the narrow scope of an ESA, the concept of business environmental risk is specifically addressed within the text of the 2000 Standard. It contemplates a few of the myriad of issues that are not automatically addressed through performance of an ILD-focused ESA. Examples include:

• The cost to remodel due to the presence, for example, of lead-based paint or asbestos-containing materials (CERCLA only covers asbestos or lead-based paint if these substances have been disposed of, as opposed to asbestos or lead-based paint existing as part of the integral structure of the building);

• The inability to develop a parcel of commercial real estate due to the presence of, for instance, jurisdictional wetlands; and

• The cost of facility noncompliance with waste management regulations such as those outlined in the Resource Conservation and Recovery Act (RCRA) as amended, 42 USC § 6901 et seq. or with the worker protection regulations as framed by the Occupational Safety and Health Act (OSHA).

These represent just a few of the important issues that a user may contemplate when considering a potential commercial real estate transaction, but which are not addressed through the contract and delivery of a standard (ILD) Phase I ESA.

Historical Recognized Environmental Condition

Prior to the 2000 Standard revisions, the E 1527 Standard did not clearly specify how an EP was to handle the presence or likely presence of a hazardous substance or petroleum product that was released in the past, but had since been remediated or, in the alternative, had been discounted as having any meaningful regulatory significance to the current environmental condition of the property. The consensus among EPs was that such findings still represented a REC.

Users such as property owners and tenants argued that the inclusion of such RECs often triggered a lenders requirement and additional investigation activities be conducted, even when information existed that suggested such concerns had been adequately addressed in the past. The term historical recognized environmental condition (HREC) is now included in the Standard to acknowledge the presence or likely presence of a hazardous substance or petroleum product associated with a past release. In practice, it represents an interim step on the logic path of developing one's findings, opinion about the significance of those findings, and then a determination of which, if any, of such findings should be elevated to RECs.

In this particular instance, the standard specifically offers guidance in cases where a past release of any hazardous substances or petroleum products has been remediated, and such activities have been accepted by the responsible regulatory agency (as evidenced by the issuance of a no further action letter (NFA) or equivalent). Here, documentation that a release occurred would be identified as a HREC in the "findings" section of the report. Its potential for existing or future impact would be addressed in the "opinion" section, wherein the ongoing environmental significance would be considered minimal due to the presence of an NFA letter. Thus, this finding would not be elevated to the stature of a REC within the "conclusions" section of the ESA report. In other words, a past impact does not automatically constitute a current negative impact or material threat of an impact to the property.

It remains important however, that the EP recognize that the "risk tolerance" of a regulatory agency may be greater or different from that of a cautious user. Furthermore, the "risk tolerance" of a regulatory agency could change, as could be the case if information is later uncovered to suggest that the de minimis conditions (i.e., those that generally do not present a material risk of harm to public health or the environment and that generally would not be the subject of an enforcement action if brought to the attention of appropriate governmental agencies) are of greater significance than once thought.

Material Threat

Prior to the 2000 Standard revisions, it was customary that a finding of a neighboring property storing hazardous substances along the common property line would be elevated to a REC based on the "material threat" of a release that could impact the subject property (a REC can only be associated with an impact on the property that is the subject of the assessment). Another example might be the mere presence of an aboveground storage tank (AST) containing petroleum products on the subject property. Such a finding would also have likely been considered a REC in the past. These examples bring to light users' concerns that they were being compelled by lenders to delay closings and expend significant additional dollars on the investigation of site features that existed under conditions in compliance with applicable regulations.

The concept of a "material threat" has always been included within the standard and, more specifically, within the definition of a REC. However, it was never specifically defined. The 2000 Standard defines a "material threat" as a physically observable or obvious threat, which is reasonably likely to lead to a release that, in the opinion of the EP, is threatening and might result in impact to public health or the environment. It articulates the "smoking gun" concept.

No longer is it sufficient to establish a site feature as a REC just because it exists. Now, there must be compelling evidence that either 1) the hazardous substance or petroleum product was released from its container or operation onto (or into) the surface or, 2) by virtue of the condition of the container or state of the operation that stores or handles such products, there is reasonable concern in the foreseeable future that such materials will be released to the surface of the property. This is a "slippery slope" for the EP, as it requires such individuals to exercise judgment when determining their opinion regarding such a finding. Both corporate pressures pertaining to internal policy, as well as client pressures may bear heavily on such judgment calls.

Because it ultimately remains the user who accepts the liability for having entered into a chain of title, it becomes extremely important that the user carefully employ an EP who they are comfortable has sufficient training and experience necessary to develop opinions and conclusions that best meet the "innocent landowner defense" irrespective of external forces. To assist users in this regard, the 2000 Standard has added a third Appendix offering guidance to users in the selection of an EP to conduct a Phase I ESA.

The E 1527-00 document is an improved Standard. It requires that the EP provide a discussion of all findings and offer an opinion including the logic and reasoning used by the EP when determining which findings are elevated to a REC, and which are not. Whether EPs will take the time required to read and understand these significant, yet somewhat subtle revisions to the standard, remains a question to be answered by the user community when contracting for such services, as it will be the user who is impacted by the results.

Standards - www.astm.org

Historical Records - www.datasite.com

Historical Aerial Photography - www.sanbornmap.com

Consultants - www.thebluebook.com

This article appeared in the April 2001 issue of Environmental Protection, Vol. 12, No. 4, on page 49.

This article originally appeared in the 04/01/2001 issue of Environmental Protection.