EPA and ASTM Incorporate PFAS Due Diligence into Environmental Site Assessments
Recent actions by EPA and the American Society for Testing and Materials (ASTM) make PFAS a real issue for conducting commercial real estate due diligence. These new measures are notable in that they give stakeholders a choice between compliance with two different ASTM Phase I Environmental Site Assessment (ESA) standards—the old and the new.
CERCLA Liability Protection: New ASTM Standards and AAI Rulemaking
The “all appropriate inquiries” (AAI) CERCLA defense provides prospective purchasers with protection after taking ownership of a contaminated property provided certain criteria are met. Owners of contaminated sites are liable for contamination attributable to the acts of their employees or agents and for third parties acting pursuant to a contractual relationship. [i] But CERCLA excludes from this definition any purchaser of a contaminated facility who “did not know and had no reason to know” of the release.[ii] CERCLA requires showing the purchaser made “all appropriate inquiries … into the ownership and uses of the facility. …”[iii]
An AAI defense—sometimes referred to as an “innocent purchaser” or “innocent landowner” defense—thus provides assurance to buyers that they will not be held liable for remedial costs under CERCLA’s strict liability regime. AAI is “the process of evaluating a property’s environmental conditions and assessing potential liability for any contamination.”[iv][LEF1][JLR2] Broadly speaking, it contains specific procedures including interviews, record reviews, identification of data gaps, and culminating in a written report.[v] EPA rules incorporate ASTM standards for purposes of complying with AAI procedures.[vi] However, until now, PFAS has never been specifically addressed in either ASTM standards or AAI regulations. As discussed below, that has changed with the adoption of the latest ASTM standard for Phase I ESAs and subsequent EPA rulemaking.
On November 1, 2021 ASTM issued a new ESA standard, adding guidance on considering PFAS in completing an ESA.[vii] That new standard, ASTM E1527-21, took effect on January 1, 2022.[viii] Subsequently, on March 14, 2022 EPA published a direct final rule to incorporate ASTM E1527-21 into AAI procedures, but did not change reference to the previous standard (ASTM E1527-13).[ix] Nor did EPA amend the substantive AAI regulation.[x] Thus, a buyer may currently utilize either standard to comply with AAI procedures. EPA is currently soliciting comments, and the new rule is expected become effective on May 13, 2022.[xi] In conjunction with the new rule, EPA published a guidance document analyzing the specific differences between the two standards.
ASTM has not yet revised standard E2247-16 for ESAs of forestland or rural property. That standard was last updated in 2016 and incorporated into the AAI regulation in 2017.[xii]
Choosing Between The Two Standards
For now, purchasers may choose between ASTM E1527-13 and ASTM E1527-21. The optimal approach will be property-specific and include several considerations. ASTM E1527-21 addresses PFAS by adding it as a non-scope consideration, meaning that a prospective purchaser may, but is not required to address PFAS in a Phase I ESA to conduct AAI. However, non-scope considerations may be required in certain cases, such as eligibility to receive federal funds. Further, EPA’s planned listing of two of the most common PFAS substances—PFOA and PFOS—as “hazardous substances” under CERCLA (expected in Summer 2023) means that PFOA and PFOS contamination will cease to be non-scope considerations, and will become recognized environmental conditions (RECs) which must be analyzed to conduct AAI.
Until the listing, stakeholders have the choice to comply with either. The best approach will depend on specific factual circumstances. Buyers with a low appetite for risk will likely opt for ASTM E1527-21 and include PFAS in the scope of each ESA. This is especially true for properties associated with the release of firefighting foams, or with history involving food packaging, wire insulation, cleaners, textiles, apparel, carpet, leather, paper, or paints. These are just a few industries associated with PFAS; buyers would be prudent to determine whether PFAS was involved in each historical use at any given site while conducting due diligence. Opting for ASTM E1527-21 will involve additional time and money, but that additional scrutiny not only ensures prospective purchasers may avail themselves of AAI’s liability protection, but also may help a potential buyer avoid purchasing property with extensive PFAS contamination. In the interim, such contamination could prove costly to both report and remediate, nullifying any utility the property may otherwise offer. State regulations and reporting requirements are disparate and rapidly evolving—but some states such as Washington have already designated PFAS as hazardous under state law. And following the forthcoming CERCLA listing for PFOA and PFOS, responsible parties in every state will need to cover remedial and reporting costs.
Buyers working on accelerated timelines or dealing with properties associated with non-PFAS historical uses may weigh the costs and decide to continue using ASTM E1527-13, even though such an approach necessarily entails additional risk. A prospective purchaser conducting ESAs under ASTM E1527-13 will waive AAI for PFAS contamination. However, most buyers naturally skew towards minimizing risk and have a vested interest in discovering PFAS contamination. The same is likely true for most lenders, who often have financing secured by an interest in the value of the property. On the other hand, sellers—who have little interest in discovering contamination on their property—will likely prefer the narrower ASTM E1527-13. Further, EPA is eventually expected to phase out ASTM E1527-13 (as it has done with prior ASTM standards), meaning that it is only a matter of time before ASTM E1527-21 becomes the universal standard.
The inclusion of PFAS in ASTM E1527-21 falls short of a requirement but is a signal to those in the commercial real estate industry that stakeholders should begin integrating PFAS analysis into their regular practices now. It is only a matter of time until PFAS due diligence is required in every Phase I ESA.
[i] 42 U.S.C. § 9607(b)(3).
[ii] 42 U.S.C. § 9601(35)(A)(i).
[iii] 42 U.S.C. § 9601(35)(B)(i).
[iv]Brownfields All Appropriate Inquiries, EPA, https://www.epa.gov/brownfields/brownfields-all-appropriate-inquiries.
[v] 40 C.F.R. § 312.20.
[vi] 40 C.F.R. § 312.11.
[vii]ASTM E1527-21, ASTM Int’l, https://www.astm.org/e1527-21.html.
[ix] 87 Fed. Reg. 14,174 (Mar. 14, 2022), adding new 40 C.F.R. § 312.11(c), https://www.federalregister.gov/documents/2022/03/14/2022-05259/standards-and-practices-for-all-appropriate-inquiries.
[xii] 40 C.F.R. § 312.11(a), as added by 82 Fed. Reg. 43,312 (Sept. 15, 2017).