Update for Property Purchasers: PFAS, Phase Is, and CERCLA Protections
In the latest development surrounding PFAS, EPA has published a direct final rule endorsing use of the newly updated ASTM E1527-21 standard for Phase I Environmental Site Assessments (“Phase Is”). This action does not have significant legal effects on its own, since it is primarily a recognition that the updated standard is in compliance with existing EPA regulations. However, the inclusion of PFAS as emerging contaminants is notable in light of other PFAS regulations on the horizon, primarily the potential designation of PFOS and PFOA as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”).1 The inclusion of PFAS within the scope of Phase I assessments has important ramifications in a range of transactions, particularly for parties purchasing properties with certain historic industrial or oil and gas operations.
Purchaser Protection: the “All Appropriate Inquiries” Under CERCLA2
The Phase I is typically the first line of defense against environmental liabilities in a real estate transaction. It is usually performed by a professional engineer or geologist pursuant to the ASTM International E1527 standard.3 The main focus of a Phase I is to identify the potential presence of hazardous substances as defined in CERCLA (with the addition of “petroleum products”).4 Phase Is are often performed so that purchasers have the ability to avail themselves of one of the limited number of defenses to liability available under CERCLA, which require satisfying a requirement known as “All Appropriate Inquiries” (“AAI”) prior to acquiring title to the property.
This defense is important for parties purchasing property where CERCLA hazardous substances may have been used, and potentially spilled, as it can protect them from CERCLA’s otherwise broad (and sometimes very costly) liability regime. CERCLA is a strict, joint-and-several liability regime for addressing hazardous substances in the environment and any person held liable for a CERCLA site can potentially be held responsible for all cleanup costs. Those who are liable for cleanup costs can include current owners and operators of a facility where hazardous substances have been released into the environment, even if those substances were released before they owned or operated the facility. Performing a Phase I is key to satisfying the AAI requirement for new owners seeking liability protection under the CERCLA defenses available to property buyers (e.g., Bona Fide Perspective Purchaser, Innocent Landowner, Contiguous Property Owner).5 The AAI rule imposes a number of requirements on those seeking to avail themselves of one of the limited CERCLA defenses,6 which are incorporated into the ASTM standard.7
“Emerging Contaminants” Under ASTM E1527-21
The new ASTM E1527-21 standard recognizes that certain contaminants of interest might not (or not yet) be defined as hazardous substances under CERCLA. Some of these contaminants might be considered hazardous under state laws, or may be expected to be federally regulated in the future. Under the standard, such contaminants are considered “non-scope” (essentially, optional) to a Phase I. However, when a Phase I is completed to satisfy both federal and state requirements, or when the user of the Phase I directs the environmental professional to do so, non-scope contaminants may be included in the report. Notably, the updated ASTM standard mentions PFAS specifically as one such “emerging contaminant.”
On March 14, 2022, EPA published a direct final rule8 incorporating ASTM E1527-21 into its AAI rule. This action does not require a Phase I user to use ASTM E1527-21; users may still utilize the older ASTM standards or otherwise follow the regulatory requirements of the rule. However, this change does allow buyers an option to preemptively include PFAS in their Phase 1s, even before any are designated as CERCLA hazardous substances.
This could be important, as PFAS chemicals were widely used in the past in a number of industrial processes, as well as firefighting activities. PFAS are a group of thousands of man-made chemicals that have been used to make everything from paints, food packaging, non-stick cookware, water-repellent clothing, stain resistant fabrics, to cosmetics. Notably, they are also found in Aqueous Film Forming Foams (“AFFF”), which are used to put out hydrocarbon liquid fires, and were therefore used at many oil and gas facilities.
PFAS in the Upcoming CERCLA Rulemaking
EPA has reportedly submitted a proposed rule to the White House Office of Management and Budget to designate two types of PFAS—PFOS and PFOA—as hazardous substances under CERCLA. This represents the first step in a rulemaking action that EPA forecast in its PFAS Strategic Roadmap, which estimated that the rule proposal would be published this spring and finalized in the summer. However, the current timetable on EPA’s regulatory agenda predicts an advanced notice of proposed rulemaking on the matter by June 2022. Regardless of the precise timeline, if EPA finalizes a rule designating the two substances as hazardous, PFOS and PFOA will become mandatory parts of a Phase I, rather than optional “non-scope” considerations.
As the new CERCLA rules and other regulations develop, buyers would be wise to broadly include PFAS chemicals as a non-scope item on their Phase Is when PFAS use on a property is suspected. If EPA adds PFOS and PFOA to CERCLA’s list of hazardous substances, the approval of ASTM E1527-21 as meeting AAI does not necessarily provide widespread remedial liability protection under federal and state law for these emerging contaminants. There are thousands more chemicals in the PFAS group that are not yet targets for federal action, some of which are already receiving attention from state regulators.9 In addition, EPA may look to add other PFAS chemicals to the list of CERCLA hazardous substances in the future, or use other federal statutes to regulate their use.
Buyers should also take care to look not just at current site uses but also historical operations as well to ensure that PFAS risks are properly assessed. Although a welcome regulatory development, buyers should still be cautioned to thoughtfully assess the scope of Phase Is performed in connection with transactions to capture state-specific concerns and PFAS types beyond PFOS and PFOA. The regulatory environment surrounding PFAS is expanding and changing rapidly, and will continue to do so as more PFAS substances are studied.
The PFAS Taskforce
V&E’s PFAS Taskforce is dedicated to helping our clients navigate the emerging and complex law and regulations that may be used to address PFAS and related chemicals. By actively tracking and analyzing the different federal and state regulatory approaches to addressing PFAS — whether in water, groundwater, soil, and air — and engaging with the evolving scientific understanding of PFAS substances, we can help our clients build short- and long-term strategies to address potential liability, remediation, and litigation concerns regarding these emerging contaminants. Drawing upon the significant capabilities in our cross-office environmental team, V&E’s PFAS Taskforce is on hand to provide practical and tailored guidance for our clients as they prepare for the shifting PFAS landscape.
1 For more information on this designation, see PFAS and the Transition to the Biden Administration: The Implications of Designating PFOA and PFOS as “Hazardous Substances” Under CERCLA, available at https://www.velaw.com/insights/pfas-and-the-transition-to-the-biden-administration-the-implications-of-designating-pfoa-and-pfos-as-hazardous-substances-under-cercla/
2 42 U.S.C. § 9601 et seq.
3 ASTM International develops and publishes voluntary technical standards for a wide variety of materials, products, systems, and services.
4 ASTM E1527-21: Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process, at 1.
5 40 C.F.R. § 312.1.
6 Id. §§ 312.23-27.
7 ASTM E1527-21 at 1.
8 A direct final rule will automatically go into effect on the specified date unless substantive adverse comments are received during the comment period. It is typically used for rules that, while not purely administrative or non-discretionary, are expected to be non-controversial. See The Office of the Federal Register, “A Guide to the Rulemaking Process,” p. 9, available at https://www.federalregister.gov/uploads/2011/01/the_rulemaking_process.pdf.
9 For example, Michigan regulates seven types of PFAS, including PFBS, PFHxS, and PFNA (Mich. Admin. Code, Rule 325); Massachusetts regulates six, including PFDA (310 C.M.R. 22.07G); and Vermont regulates five, including PFHpA (Vermont Water Supply Rule, Subchapter 21-6.12; 10.1.2).
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.