Phase I ESA Standard Update – The Wait is Over
On December 15, 2022, the U.S. Environmental Protection Agency (EPA) provided notice of a Final Rule approving the use of the new American Society for Testing & Materials (ASTM) “E1527-21 – Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process (ESA).” The rule became effective on February 13, 2023.
This is particularly important for buyers of commercial real estate (CRE) property who want to preserve the bona fide prospective purchaser (BFPP) defense, which can serve as a critical shield and protection against strict federal environmental liability for pre-existing contamination.
So What’s Changed?
The biggest question for most CRE professionals is whether the changes will increase the cost and time required to do a Phase I ESA. The likely answer is yes, but the degree may vary from property to property.
The 2021 version of the standard will require more historical review than the 2013 version, which will increase costs for some properties. E1527-21 requires review of all four core historical records—aerial photos, topographic maps, city directories, fire insurance maps—for the subject property. If the property has been used for manufacturing, industrial, or retail, additional historical records should be reviewed. The 2013 version allowed the reviewer discretion to only review historical records they felt were “necessary”, so this presents an increase in workload and vendor costs.
A summary of some other significant changes is provided below:
Opinion vs Recommendation
The environmental professional is required to opine whether additional investigation(s) may be appropriate; however, a recommendation of additional investigation that provides a specific course of action is not required unless specifically requested by the user of the Phase I ESA.
Report Shelf Life
The new Phase I standard also clarifies that the key elements of the ESA must each be completed no earlier than 180 days (six months) before the transaction by which the interest in property is obtained, with all other components being current or updated within one year.
The 2021 revision requires that a title search be reviewed back to 1980 for environmental liens and deed restrictions, whereas the prior revision did not have a set date, so this is another area that may increase cost and time. Other changes, such as what must be included in the report, will likely not have much impact, as most consultants have already moved towards including everything they reviewed as appendices (as evidenced by the size of most Phase I ESA reports).