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The standards for Environmental Due Diligence and Phase I Environmental Site Assessments continue to develop.    Below is a review of a few significant changes to the environmental due diligence standards that occurred in 2011:

  • Freddie Mac ‘s Environmental Due Diligence Standards;
  • SBA 50 10 Environmental Due Diligence Standard;
  • ASTM E1527;

Freddie Mac’s Environmental Due Diligence 

In May of 2011, Freddie Mac released environmental requirements for the Freddie Mac Multifamily Seller/Servicer Guide.  The new requirements amounted to one of the most significant standard changes in the practice of Phase I Environmental Site Assessments and three significant changes are discussed below.

Freddie Mac clarified how and when asbestos testing should be done, as well as when an asbestos Operations and Maintenance (O&M) Plan is acceptable in lieu of asbestos testing.  More asbestos work will likely be required as the environmental professional’s opinion on whether asbestos testing is necessary cannot be based solely on construction date.

The new Freddie Mac standard requires the environmental consultant to declare whether or not there is a State Super Lien Law in the state of the subject site.  A State Super Lien, while uncommon, allows the state to put a first priority lien on the real estate asset in response to environmental contamination.

The new Freddie Mac guidance also included more specific inspection requirements (for example, number of units required to be inspected). Freddie Mac Form 1103 was also changed as part of the in 2011 updates.

SBA Environmental Due Diligence

In October of 2011 the SBA updated its Environmental Investigation requirements for Lender Development Company loans (the 50 10 5(D) Standard Operating Procedures).  The updates clarify terminology and definitions, and amend certain environmental due diligence requirements.  Some of the more significant changes alter the environmental investigation requirements for two facility types:

“Car Wash Only” facilities are now required to have at least an Environmental Transaction Screen.  This loosens the environmental investigation requirements a bit from previously having to start at a Phase I Environmental Site Assessment, due to the generally lower-risk type of these properties (as long as there are not other automotive care operations at the site such as oil changing or fueling).

Gas Stations / Commercial Fueling Facilities: During the required Phase I ESA for gas stations, environmental consultants are now required to determine the compliance of the gas station with state tank and equipment tightness testing requirements, rather than requiring that equipment testing was done within 12 months prior to the environmental investigation.  This change was made because not all states require equipment testing every year.   The SBA also expanded the Gas Station environmental investigation requirements to include “commercial fueling facilities”, to eliminate any uncertainty.

The remainder of the changes do not significantly alter the environmental due diligence requirements, but include clarifications on the definition of “multi-unit building”, what constitutes a special use facility, the Environmental Questionnaire, who may conduct an SBA Phase I Environmental Site Assessment, and who can indemnify.

ASTM E1527

ASTM E1527 – 05 Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process is the primary standard used for Phase I ESAs and the standard was last updated in 2005.   In 2011, the ASTM working group E50 met to discuss potential changes to the E1527 standard.   No hard deadline is set yet for the next official revision.  The ASTM committee that oversees the revision process for this standard (Committee E50) is meeting again this first week of November, and will discuss suggested changes; however, nothing is expected to change until 2013.