The U.S. Department of Housing and Urban Development (HUD) announced on April 16, 2014 that, effective May 16, 2014, it is adopting the recently updated Phase I Environmental Site Assessment (ESA) Standard, ASTM E1527-13. HUD funding recipients, Federal Housing Authority-insured mortgagees, and HUD contractors must now use the ASTM E1527-13 standard when conducting Phase I ESAs.

The updated standard is an important due diligence tool used to assist prospective purchasers of potentially contaminated property in meeting the "all appropriate inquiries" test under the Comprehensive Environmental Response, Compensation, and Liability Act, commonly known as "CERCLA" or "Superfund," thereby qualifying for available CERCLA liability exemptions.

It is HUD policy that HUD property be free of hazardous materials and contamination that could impact occupants' health or safety. While HUD guidance documents required conformance with the prior Phase I standard, ASTM E1527-05, this announcement means that HUD is bringing its programs in line with the 2013 standard.

HUD noted several advantages of the new standard. First, Controlled Recognized Environmental Conditions (CRECs) must be identified in Phase I ESAs. A CREC is defined as a past release of a hazardous substance that has been satisfactorily remediated to meet specified risk-based criteria, but where contaminants are allowed to remain in place subject to certain controls being implemented. HUD believes that the new CREC definition will be of assistance in determining whether certain HUD properties are appropriate for residential use.

Second, the new standard clarifies that a Phase I ESA must include an assessment of migration of hazardous waste and petroleum in vapor form potentially affecting the subject property.

Finally, HUD noted that ASTM E 1527–13 makes it clear that even where a historical release of a hazardous waste or petroleum product was considered to be satisfactorily addressed under then-applicable cleanup standards, such a Historical Recognized Environmental Condition (HREC) nonetheless must be evaluated by the Phase I preparer if the regulatory standards have changed.

For additional information regarding the updated ASTM E1527-13 standard, contact Sharon Newman with Preti Flaherty's Environmental Practice Group.