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

By Elizabeth K. Miles

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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