It’s a REC! New Phase 1 Environmental Assessment Standards; How to Maximize Protection from Pre-Existing Environmental Conditions


In 2013, the Environmental Protection Agency amended what is known as the “All Appropriate Inquiry” (“AIA”) rule to state that ASTM E1527-13 replaces ASTM E1527-05 as the new Phase I environmental testing standard. What does this mean for a potential buyer of a dealership? Likely some increases in cost and time in obtaining your Phase I and Phase II environmental audits – but also, hopefully, better protection as a “bona fide prospective purchaser.”

In order to enjoy the limited liability and potential defenses against environmental issues, a buyer must be sure that their environmental professional is following the most recent standards and that the expanded areas of focus are not set aside for the Phase II.

The 3 major changes that come with ASTM (American Society for Testing and Materials) E1527-13 are: (i) Changes to definitions of Recognized Environmental Conditions (“RECs” ), Historic RECs – known RECs that do not require additional action, and (the addition of) Controlled RECs – known RECs that do require additional action; (ii) Expansion of the duty to investigate potential vapor migration on to, off of, and across the property; and (iii) Expansion of the duty to investigate regulatory files regarding the property.

So what should you look for in your Environmental Professional’s Phase I or Phase II proposal? First, you should look for E1527-13, instead of E1527-05, as the standard they intend to follow. (Also, be sure your real estate purchase agreement dictates the new standard). Second, don’t be surprised to see references to vapor migration screening and the costs associated therewith. Third, be sure there is no caveat that regulatory file review will only be part of a Phase II. You are hoping to eliminate the need for a Phase II in one shot, not ensure the Environmental Professional is busy for the next few weeks. Fourth, ensure there is not a “cost of services” cap on damages if the Environmental Professional misses something. They have insurance like the rest of us.

The Comprehensive Environmental Response Compensation and Liability Act (CERCLA), 42 U.S.C. §§ 9601, et. seq. (“CERCLA”) provides for strict joint and severed liability for four classes of persons: (i) Current owners ; (ii) Current operators; (iii) Owners at the time of the release; (iv) Operators at the time of the release. While the liability is supposed to be strict, the Regulations are there to help persons establish liability protection and defenses. Ensuring your Environmental Professional provides you with a Phase I that rises to the new standards is the most important (but not the only) piece of the puzzle.