Purchasing Contaminated Properties: Environmental Due Diligence and the ASTM E1527-21 Phase I Standard

Description

All commercial real estate transactions involve some level of environmental risk, regardless of whether the property being transferred was formerly used for industrial, commercial, agricultural, or residential purposes. Accordingly, it is important for a buyer to conduct some level of environmental due diligence prior to purchasing real property. Environmental due diligence will allow the buyer to identify and quantify the environmental issues associated with the property.

Environmental liability in purchasing real property may arise from several different federal or state statutes, including the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, commonly known as Superfund or CERCLA and its state counterparts, hazardous waste and water quality laws, and laws regulating underground storage tanks.

The standard tool for due diligence, ASTM E 1527-21, was revised in November 2021. These standards under the E1527-21 provide more guidance on conducting historical reviews of the subject property and adjoining properties, revises definitions of recognized environmental conditions (REC) and controlled RECs (CRECs), includes a new term "property use limitation," a new explanatory appendix with REC determination examples, changes in the records review section, and clarifies the role of emerging contaminants such as PFAS in Phase 1 environmental site assessments.

The scope of environmental due diligence can depend on several factors, including characteristics of the real property, past uses of the land, known contamination on the property or surrounding property, and the anticipated use of the property after purchase. Appropriate due diligence may range from a simple Phase I ESA to a more complex and intrusive Phase II ESA involving air, soil, soil vapor, water, and/or groundwater sampling at the property.

In some cases, the ASTM 1521 standard may need to be modified or supplemented to adequately address risks, including the potential for soil vapor intrusion, which has become a driving force at many contaminated sites.

There are various ways of limiting liability in the purchase and sale of contaminated property. Counsel can use the purchase and sale agreement as a mechanism to allocate environmental risks, including representations and warranties, escrows, releases, indemnities, and potentially the retention of environmental liabilities by the seller, or more often the assumption of environmental responsibilities by the buyer.

Listen as our expert panel discusses the liabilities associated with selling or buying contaminated property under state and federal environmental laws. The panel will address the risks associated with a particular parcel of land, as well as the defenses available under state and federal law and how environmental counsel can reduce the costs of litigation and clean-up.