Chances are if you are involved in the transfer, ownership, use or management of commercial or industrial real estate then you are familiar with the term “Phase I” or “Environmental Site Assessment (ESA)”. In a nutshell, a Phase I ESA is a report that an environmental consultant prepares to identify and summarize potential or existing environmental risks or concerns about a property, using a standard produced by the American Society for Testing and Materials (ASTM).
An updated “new and improved” standard (ASTM E 1527-13) is now in the works to transition from the previous standard (ASTM E 1527-05), slated for publication as early as next month. The EPA is expected to follow early in 2014.
There are several changes such as new clarifying definitions and more stringent requirements for regulatory data base searches and file reviews. But one of the bigger takeaways is the inclusion of vapor migration screening.
Vapor Intrusion Evaluation
I’ve blogged about vapor intrusion risk and these anticipated new due diligence standards almost a year ago so I don’t want to say “I told you so”:
The new standard requires that vapor intrusion be considered as part of the assessment process in evaluating possible recognized environmental conditions (RECs). If the property has contaminated soil and/or groundwater under or nearby then it is reasonable to assume that Phase II sampling may be required unless the risk of vapor intrusion can otherwise be screened out. If vapor intrusion conditions are determined to exist or be a concern then engineering controls may be necessary. It is also plausible that “no further remediation/action” letters from the past are no longer adequate if vapor intrusion was not part of that evaluation.
Clarification of Certain Definitions
The new standards clarify some definitions, such as “Historical Recognized Environmental Conditions” (a contaminated condition that has been remediated to the satisfaction of a regulatory agency without any property use restrictions) vs. “Controlled Recognized Environmental Conditions” (a REC that has been remediated to the satisfaction of a regulatory agency but contains residual contamination that is allowed to remain, subject to activity and use limitations, or other use restrictions, or institutional and engineering controls).
File Review Justification
The new standards require more stringent level of justification for determining whether or not a regulatory file review is warranted and the use of historical documents, database/records searches and the like.
In summary, all this could potentially mean that Phase I ESAs may:
- Take more time to complete
- Become more costly (particularly if a vapor intrusion concern is raised)
- Potentially increase your liabilities/exposures
- Possibly make properties more difficult to insure.
Fortunately, the environmental insurance market has responded to many of these exposures by providing cost-effective insurance solutions to help transfer and manage the risk.