Should Phase I Environmental Site Assessments be Priced as a Commodity?

Synergy Environmental, Inc.
Brian K. Loughnane, PG

April 20, 2016

The short answer is no. Yet it’s very common within the environmental due diligence market for certain purchasers or lenders to treat a Phase I Environmental Site Assessment (ESA) as a one unit price commodity good.  To examine the differences between a commodity good and a Phase I Environmental Site Assessments let’s review the definition of both a commodity and Phase I ESA.

Wikipedia defines the term commodity” as an economic good or service when the demand for it has no qualitative differentiation across a market.  More specifically the market treats its instances as equivalent, or nearly so, with no regard to who produced them.  Examples are a bushel of wheat or a dimensioned piece of lumber.  Basically a purchaser of one of these items is not influenced by where it originated or who originated the item.  As an example in most marketplaces no one asks “where did the wheat in the bread one eats originate?”

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Revised Phase I Environmental Standards Will Impact Property Acquisitions This Fall

Reed Smith, LLP
Todd O. Maiden, Tala S. Gardner & SueLyn Smith Athey

June 9, 2015

The All Appropriate Inquiries Rule (the “AAI Rule”), set forth at 40 CFR Part 312, serves as a benchmark protocol for inspecting a property’s environmental condition. If the benchmark is met, a prospective purchaser can be insulated from liability under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). In order to satisfy the requirements of the AAI Rule, a prospective purchaser must be able to demonstrate satisfaction of certain industry standards promulgated by the American Society for Testing and Materials (“ASTM”). On December 20, 2013, the Environmental Protection Agency approved ASTM Standard 1527-13 (the “Revised ASTM”), relating to Phase I Environmental Site Assessments (“Phase I Assessments”), as sufficient to satisfy the AAI Rule for protection under CERCLA. The EPA approval goes into effect on October 6, 2015. After this date, prospective purchasers of property must verify that all Phase I Assessments and related due diligence are performed in accordance with the Revised ASTM. The changes, discussed below, could impact the time and costs associated with due diligence, and prospective purchasers should start planning now.

Changes in Recognized Environmental Conditions

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EPA Finalizes Change to All Appropriate Inquiry Rule: ASTM E-1527-05 Does Not Establish CERCLA Defenses Anymore

Seyfarth Shaw LLP
Andrew H. Perellis , Jeryl L. Olson and Ilana R. Morady

October 6, 2014

On October 6, 2014, EPA finalized an amendment to the “All Appropriate Inquiries” (AAI) rule to remove the reference to ASTM E-1527-05. 79 Fed. Reg. 60087. This means that ASTM E-1527-05 is no longer adequate to establish landowner and lender liability protections under CERLA. Buyers, sellers, and lenders take note: you will now need to ensure that your AAI is conducted under the newer 2013 ASTM standard.

“All Appropriate Inquiries,” or AAI, is the process of evaluating a property’s environmental conditions and assessing the likelihood of any contamination. Buyers, Sellers and Lenders involved in the transfer of real estate, including real estate transferred as part of a corporate merger, acquisition or asset sale, know that ASTM E-1527 is the typical starting point for conducing AAI and thus obtaining landowner and lender liability protections under the environmental statute CERCLA. In 2013, the 2005 ASTM standard was revised (see our article, SOMETHING NEW IS IN THE AIR:  Important Changes to ASTM E 1527 “Phase I” Environmental Due Diligence, to read more about the 2013 revisions). EPA’s policy at the time was that both ASTM E1527-05 and E1527-13 were consistent with the AAI rule at 40 CFR Part 312.  Now, however, EPA has amended the AAI rule  to remove the reference to ASTM E-1527-05, thus rendering the 2005 standard inadequate for establishing CERCLA landowner and lender liability protections.

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EPA Issues Proposed Rule to Remove Reference to ASTM E1527-05 in All Appropriate Inquiries Rule

Perkins Coie LLP
Joanna M. Thies, Sloane A. Wildman and Aubri N. Margason

June 17, 2014

On June 17, 2014, the U.S. Environmental Protection Agency published a proposed rule to amend the standards and practices for complying with the “All Appropriate Inquiries” rule under the Comprehensive Environmental Response, Compensation, and Liability Act and its implementing regulations, 40 C.F.R. part 312. Amendments to CERCLA adopted in 2002 required EPA to publish regulations establishing standards and practices for conducting “All Appropriate Inquiries,” which is the process by which a party acquiring real property evaluates the site’s environmental conditions and potential for contamination. The party must follow these standards and practices to qualify for certain defenses from liability under CERCLA if a subsequent dispute arises concerning historical contamination at the site.  Under the existing regulations, the All Appropriate Inquiries investigation may be based on either the prior 2005 site assessment standard published by ASTM International or on the newer standard published by ASTM International in 2013. The proposed rule published today would eliminate the use of the prior 2005 standard.

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EPA Approves ASTM E1527-13 Phase I ESA Standard for All Appropriate Inquiry Environmental Law Update

Quarles & Brady LLP
George J. Marek, Lawrence W. Falbe, Lauren Harpke and Raphael F. Ramos

January 6, 2014

On December 30, 2013, the United States Environmental Protection Agency (“EPA” or the “Agency”) approved the recent American Society for Testing and Materials (“ASTM”) Standard E1527-13 as sufficient to satisfy All Appropriate Inquiry (“AAI”) for potential liability protections under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). 78 Fed. Reg. 79,319. As a result, E1527-13 now stands as the baseline for Phase I Environmental Site Assessments (“Phase I ESAs”) and any individuals performing Phase I ESAs should ensure that their assessments are in compliance with that standard going forward.

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New ASTM Phase 1 Environmental Site Assessment Standards Endorsed by EPA as Constituting “All Appropriate Inquiries” Under CERCLA

Barnes & Thornburg LLP
David R. Gillay, Charlie Denton, Susan Parker Bodine, Timothy A. Haley, Joel T. Bowers and Bruce White

August 20, 2013

On Aug. 15, U.S. Environmental Protection Agency (EPA) issued notice in the Federal Register that it intends to endorse the updated “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process,” issued by ASTM International, through a Final Rule amending 40 C.F.R. Part 312. See Environmental Protection Agency, Amendment to Standards and Practices for All Appropriate Inquiries, 78 FR 49714 (Aug. 15, 2013) (link to proposed rule is here). If there are no adverse comments to this direct Final Rule the rule will go into effect in 90 days, on Nov. 13, 2013. The comment period for this Rule closes on Sept. 16, 2013.

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