The standards for an ASTM Phase 1 environmental site assessment were updated in 2013 with the addition of vapor migration screening, a regulatory file review and new definitions.
Daniel Johnson, southwest environmental services director at San Diego-based SCS Engineers, is a voting member of the ASTM’s Committee of Environmental Assessment, E50, which reviews ASTM standards.
The ASTM (American Society for Testing and Materials) Phase 1 standard is one aspect of environmental risk management for real estate transactions, Johnson said. The new site assessment standard — ASTM E1527-13 — was adopted by the Environmental Protection Agency and complies with all appropriate inquiries (AAI) as of December 2013. ASTM E1527-05, the 2005 standard, may still be used as firms begin to move to the new standard.
One of the biggest changes to this standard is the inclusion of vapor-migration screening. Johnson gave the example of a dry cleaning business from the 1950s that drained its dry cleaning solvent, which would go through the concrete and into the soil. It may evaporate quickly, and when it gets into the ground it generally becomes a vapor. Fast-forward to today and that “vapor cloud” is still there and can come back through the slab over time.
“What the Phase 1 now says is that it is an obligation within the Phase 1 to address the potential for vapor migration and whether or not it is a recognized environmental condition,” Johnson said. “That’s a change; it was nebulous before — I think some firms certainly addressed it, we did — but now it’s been made very clear.”
Conducting a vapor-migration screening may require additional time, which could impact the cost of a Phase 1 assessment. One debate in the industry is whether property owners who were issued a closure letter are now responsible for the vapor pathway. Johnson said the agency tends not to reopen sites once they’re closed.
A regulatory file review has also been added to the ASTM Phase 1 standard, a result of how SCS Engineers runs its practice, Johnson said. Johnson worked on the firm’s due diligence practice with a co-worker, who made it clear that it’s important to review the files for the subject property as well as to understand what regulatory agencies say about adjacent properties. Even if it’s closed, it’s important to know under what circumstances the site was closed, Johnson said.
The prior Phase 1 standard was “inadequate” on this, Johnson said. His former co-worker headed a subcommittee focusing on this change.
The addition of the file review could cause the Phase 1 assessment to require more time, which could also impact the cost.
The definitions for a recognized environmental condition (REC), a historic recognized environmental condition (HREC) and a controlled recognized environmental condition (CREC) were all altered in the new Phase 1 standard. Those changes can be found at www.astm.org/Standards/E1527.htm.
Johnson said he anticipates the changes to bring more consistency to the Phase 1 assessments.
The standards are to be reviewed and updated every five years. They were updated in 2005, and this new standard was delayed because it took more than four years to develop it and come to a consensus.
Firms have begun to adopt the new standard; Johnson said his firm will see little change because it already follows most of the new changes.
The Phase 1 standard was begun because of the environmental issues and liability associated with commercial real estate transactions. It provides protection from liability; if all appropriate inquiries are performed properly, the purchasers can buy the land with assurances that they will not be subject to lawsuits.
“More and more, we’re figuring out ways to safely manage contamination in place and not have to excavate every last cubic area of soil and have to haul it away,” Johnson said.
Phase 1 assessments uncover potential environmental risks, it’s required by lenders and it qualifies for defenses to liability.
A Phase 1 assessment protects against three defenses under CERCLA, or “superfund” liability. The innocent-landowner defense states that a Phase 1 was completed and the owner-operator did not know of a hazardous substance release.
The second defense is the bona fide prospective purchaser, which states that if the purchaser can demonstrate the contamination was present before purchase and takes reasonable steps of due care, then the purchaser won’t be held a responsible party.
“It pushes properties with contamination — otherwise known as brown field sites — into the commercial real estate marketplace,” Johnson said, which allows people to acquire the sites for redevelopment instead of leaving them abandoned.
The third defense, the contiguous property owner defense, allows someone to purchase a property contiguous to a contaminated property if the owner can demonstrate through all appropriate inquiries that he or she didn’t know about the contamination at the time of purchase.
An environmental insurance policy can be purchased at a higher price tag. A Phase 1 typically costs about $2,500; an environmental insurance policy can run $25,000 to $50,000 for a commercial transaction.
Risk and liability management can also be included in risk transfer. SCS Engineers has a separate division called SCS Secure, which identifies the environmental liability, estimates the cost of remediation and basically guarantees that it would do a clean-up for a fixed price. The risk is transferred from the property owner to SCS Secure, which will take the property to closure.