Buyers, Owners and Lenders Take Note: HUD Adopts New Standards for Phase I Environmental Site Assessments
April 23, 2014

By Elizabeth K. Miles & William J. Mulligan

On April 16, 2014, the Department of Housing and Urban Development (HUD) published notice that it has adopted an updated standard for conducting the Phase I environmental site assessments required by the Office of Housing and Federal Housing Administration’s guidance documents. Those planning to buy or refinance property after May 16, 2014 or serve as a lender to real estate purchasers for property subject to HUD’s guidelines should be aware of the new requirement, outlined below.

HUD Requires a Phase I Assessment:
HUD requires all property proposed for use in its programs be free of hazardous materials, contamination, toxic chemicals and gasses, and radioactive substances where a hazard could affect the health and safety of occupants or conflict with the intended use of the property. To satisfy this requirement, HUD requires a Phase I environmental site assessment in accordance with ASTM E1527.

ASTM E1527 defines good commercial and customary practice for conducing a Phase I assessment of a parcel of commercial real estate with respect to a range of contaminates within the scope of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and petroleum products. The goal of a Phase I assessment is to identify the presence or likely presence of any hazardous substance or petroleum product due to a release or under conditions that indicate a release or threatened release. These are referred to as “recognized environmental conditions” (RECs).

A Phase I assessment involves reviewing records of the property, a visual inspection, interviews with owners and occupants of the property and local government officials, and drafting a report regarding RECs on the property. A Phase I assists in understanding the potential environmental risks and liabilities associated with a property before acquisition or construction. Completing a Phase I in compliance with the current version of ASTM E1527 protects users from liability under CERCLA, which imposes strict, joint, and several liability on property owners.

If the Phase I assessment shows a REC is present, a Phase II assessment may be required. A Phase II assessment involves testing on the property to determine the type and extent of contamination. HUD advises that it may require a Phase II assessment even if no REC is found.

ASTM E1527-13:
HUD previously required that Phase I assessments comply with ASTM E1527-05, published in 2005. Starting May 16, 2014, participants in Office of Housing/FHA programs, funding recipients, FHA-insured mortgagees, and contractors must use ASTM E1527-13, published in 2013, wherever HUD guidance references E1527-05.

ASTM E1527-13 includes new and modified definitions that may change the way Phase I assessments are conducted or written. These changes include: newly defining “controlled recognized environmental condition,” which must be identified in a Phase I assessment; defining “migration” to include hazardous substances and petroleum products in vapor form; and modifying the definition of a “historical recognized environmental condition” to require evaluation of whether a historical release that was satisfactorily addressed in the past is considered an REC at the time of the Phase I assessment because of a change in regulatory criteria.

If you have questions about the impact of ASTM E1527-13 or Phase I and Phase II environmental site assessments relative to your real estate development plans, please contact your Davis & Kuelthau attorney or the authors, William J. Mulligan, at 414.225.1429 / wmulligan@dkattorneys.com, or Elizabeth K. Miles, at 414.225.1491 / emiles@dkattorneys.com.

 

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