ASTM Definitions: the Black, White and Grey

Frequently in the area of real estate due diligence, persons who retain consultants for a Phase I Environmental Site Assessment (Phase I ESA) may find themselves questioning the terminology or even the acronyms utilized by the consultant.  ASTM International has developed the international terminology used to provide an “even playing field” of understanding when it comes to Phase I ESAs and other environmental reports used in real estate due diligence.  What, where, when, by who, why or even how the assessment is conducted does not matter as long as there is a common understanding of the definitions.

Common ASTM International-defined terms include a Recognized Environmental Condition (REC), Historical Recognized Environmental Condition (HREC), and the newly proposed term Controlled Recognized Environmental Condition (CREC).  Each environmental assessment has its own unique structure and issues, and every client has different specifications and risk tolerance levels that affect how environmental conditions are determined.  This means that how these black & white ASTM definitions are applied to environmental liabilities becomes a ‘grey’ area, and can be confused by the most seasoned Phase I ESA reviewer.

The primary goal for a Phase I ESA is to identify environmental liabilities or “recognized environmental conditions” on a parcel of real estate within the scope of Comprehensive Environmental Response, Compensation and Liability act (CERCLA).  This is only one requirement to satisfy the Landowner Liability Protections (LLPs); however, it will also present information in order to evaluate the business environmental risk tolerance of the associated parcel.  How environmental liabilities are determined comes down to how the ASTM terms are used throughout the Phase I ESA report.

Recognized Environmental Condition (REC)

Black and White Definition of a REC: ASTM defines a REC as the presence or likely presence of any hazardous substance or petroleum products on a property under conditions that indicate an existing release, a past release, or a material threat of release of any hazardous substances or petroleum products into structures on the property or into the ground, groundwater, or surface water of the property.  The term includes hazardous substances or petroleum products even under conditions in compliance with relevant laws.  The term is not intended to include de minimis conditions, which are not recognized environmental conditions (ASTM 3.2.74) and generally do not present a threat to human health or the environment and that generally would not be the subject of an enforcement action if brought to the attention of appropriate governmental agencies.

Grey Definition of a REC: the term REC is applied by the environmental professional based on the findings during the site reconnaissance, historical research and/or current and historical use of the commercial real estate being evaluated.  Once the determination as a REC has been made, the next steps taken depend on the risk tolerance of the client.

Even Greyer Definition of a REC: A client receives a Phase I Environmental Report and sees “Recognized Environmental Condition, further investigation may be required.” Translation: “We have issues.”

For example, a leaking underground storage tank (LUST) located just over the property line may be in compliance with the regulatory agency and corrective action measures but it still may pose a material threat of release of petroleum products to the subject property – it all depends on the information readily available to the environmental professional.  Absence of information concerning the extent of the contaminant plume onto the subject property may be considered a REC. On the contrary, if the plume does not extend on to the subject property, it may not be considered a REC.

Here-in lies the grey area: depending on the risk tolerance of the client or proposed activities of the potential new occupant, what kind of recommendation should be made? Two separate recommendations, unless a client prefers to omit recommendations, could satisfy the client risk tolerance: one option may be to recommend a periodic review of the compliance files for the facility, and a second option would be to conduct a limited subsurface investigation or a baseline assessment along the property line.  It all comes down to the individual client needs and their risk tolerance.  Because of this, notifying clients upfront if a REC is identified to establish which option best suits their risk tolerance can help save time and money for all parties involved.

Historical Recognized Environmental Condition (HREC)

Black and White Definition of an HREC: ASTM defines an  HREC as an environmental condition which in the past would have been considered a recognized environmental condition, but which may or may not be considered a recognized environmental condition currently.  A past release of any hazardous substance or petroleum products has occurred in connection with the property and has been remediated, with such remediation accepted by the responsible regulatory agency. (ASTM 3.2.39)

Grey Definition of an HREC:  This term is generally applied to release incidents that have been addressed to the satisfaction of the regulatory agency and subsequently closed and granted a no further action letter.  The key is closure by the regulatory agency.  Just because a past release was considered “closed” doesn’t necessarily mean there is no current environmental concern – for example, a historic dry cleaning operation identified during the Phase I ESA.  As such, the final decision for a REC to be considered an HREC or vice versa is at the sole discretion of the environmental professional.

Here’s an example: a UST was removed from the subject property, oversight was performed by the regulatory agency, sampling data was below the action levels and a No Further Action (NFA) letter was issued.  At first look, this scenario would fit nicely into the HREC category, as it was remediated to the satisfaction of the regulatory agency and a NFA was issued.  The underlying information that needs to be considered is the historic and current regulatory action levels. If the action levels have changed to more conservative values and the previous concentrations exceed the current regulatory action levels, the environmental professional may determine this site to be an REC and recommend additional investigation.

Making The Call

With the risk tolerance and client directive in mind, an environmental professional has to consider the regulatory agency records, regulatory status and current impact to the property to determine how to define environmental conditions identified during the Phase I ESA.