Get ahead: including PFAS in environmental due diligence

By Eric Wood and Elizabeth Krol, Ramboll

Instead of waiting for USEPA to add PFAS to the hazardous substances list, lenders and equity investors for commercial real estate should consider addressing them in Phase I ESAs now. Eric Wood and Liz Krol explain why.

July 2023

Considering liability, pre acquisition

Questions surrounding long-term liability are top-of-mind pre-acquisition, when considering taking title to a property and becoming part of the chain of ownership. Commercial real estate investors should be cognizant of the need to consider emerging contaminants, especially per- and polyfluoroalkyl substances (PFAS).

Concerns regarding emerging contaminants have become increasingly heightened as the prevalence and persistence of PFAS become better understood. Although the United States Environmental Protection Agency (USEPA) has yet to add emerging contaminants to the hazardous substances list, 28 states are further ahead with regulatory thresholds, while others are still in development.

With near-constant press coverage and increasing global regulatory scrutiny, those involved in commercial real estate transactions are asking – how could PFAS affect us, and what do we need to do about it?

ASTM E1527-21 and the AAI standard

Effective February 13, 2023, the USEPA adopted ASTM E1527-21 to meet the All Appropriate Inquiries (AAI) standard (AAI standard; 40 CFR Part 312). The current ASTM E1527-21 Phase I Environmental Site Assessment standard sets a higher bar for what is deemed “good commercial and customary practice” in environmental due diligence.

As part of the due diligence process, environmental professionals seek to identify recognized environmental conditions (RECs) associated with the subject property. The scope of work includes data gathering and drawing conclusions regarding RECs in order to meet the requirements of AAI under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, or Superfund).

Why consider emerging contaminants in due diligence now?

The purpose of the Phase I ESA process is to seek an understanding of current and historical operations or conditions at the subject and adjoining properties, specifically including industrial operations that may include use of petroleum products and hazardous substances, to identify RECs.

While nearly 30 states in the US currently have guidance and/or regulatory thresholds established pertaining to certain PFAS, the environmental community is awaiting an announcement from USEPA pertaining to the addition of two PFAS to the CERCLA hazardous substances list (PFOS and PFOA). Maximum contaminant levels (MCLs) are also proposed by USEPA in this proposed regulation to establish the maximum level allowed in water delivered to any user of a public water system (PWS). For the assessment of industrial properties in particular, increased attention should be considered for the potential presence of emerging contaminants, including PFAS.

While consideration of emerging contaminants like PFAS is referenced in the current Phase I ESA standard in the non-scope considerations, they have the potential to be identified in state agency database searches for jurisdictions that have established regulations or guidance pertaining to emerging contaminants. Some clients may be interested in including an assessment of PFOA and PFOS (the PFAS that are currently proposed for listing as CERCLA hazardous substances).

How environmental consultants can help

The presence or potential presence of PFAS brings unique challenges to transactions. Along with counsel, environmental consultants are key in a number of ways. Skillful consultants will:

1. Know where and when and why to look: PFAS are often easily overlooked.

2. How to search historical information.

3. Use a science-based approach in forming conceptual site models (CSMs) to inform potential risks and liabilities that may not be inherently obvious.

4. Take an experienced, balanced approach to findings, without unnecessary alarm.

5. Coordinate with counsel, especially in sensitive situations.

6. Account for background considerations and other sources of PFAS.

7. Estimate the risks and liabilities when PFAS are involved.

8. Advise if a Phase II investigation is necessary.

9. Use Operational Assessments (often through counsel) to identify risks and liabilities.

10. Be sensitive to differing objectives whether buying, selling, or divesting.

Looking ahead

Those considering a new acquisition, investment, or leasehold, particularly with a property that may have had industrial or manufacturing operations on site currently or historically, should work closely with their trusted environmental counsel and environmental consultant to develop an approach to due diligence when seeking to limit liability and understand the uncertainty surrounding emerging contaminants such as PFAS.

The regulatory landscape is constantly changing, and due diligence presents an opportunity to reduce uncertainty and decrease risk.

Ramboll is proud to be a new affiliate member of the EBA! Please look out for a company spotlight feature in the upcoming Winter 2024 and Eric Wood are both Principals in Ramboll’s Westford, New England www.ramboll.com/pfas

Beyond support with due diligence, Ramboll provides additional technical and advisory support services for PFAS and other emerging contaminants, including investigation, remediation, forensics analysis, expert litigation support including cost recovery and cost allocation, drinking water and wastewater treatment, air quality, and health sciences.