Problems Emerge with New CREC Definition

After a little more than six months after ASTM issued its new E1527-13 Phase 1 standard practice, problems are emerging over the new definition Controlled Recognized Environmental Condition (CREC) definition. The difficulties are related to the definition itself and differences among state environmental programs.

Before discussing the CREC problems, a little background might be helpful for readers. Prior to 2000, there were only two types of conditions that had to be evaluated in an ASTM Phase 1 report by an environmental consultant: a Recognized Environmental Condition (REC) or a de minimis condition. The term REC does not appear in CERCLA but was developed by ASTM to help consultants distinguish minor spills from those conditions that would be required to be investigated or remediated. If a consultant identified minor spills or releases that did not pose a risk to human health or the environment, and that would not result in enforcement actions if brought to the attention of regulators could be classified as a de minimis condition.

The 2000 revisions to E1527 added the term Historical Recognized Environmental Conditions (HREC) which was intended to be used for sites where contamination was remediated to applicable standards. Instead of labeling the former contamination as a REC, consultants could now identify the former spill as an HREC, confirming that it has been remediated and no longer poses a risk to human health of the environment. The HREC concept was a useful tool since it prevents property from continuing to be stigmatized by the existence of a former release in state or federal databases.

Unfortunately, consultants did not consistently apply the HREC term so that similar situations were classified as HRECs, RECs or de minimis conditions. Some made HREC determinations without verifying the cleanup standard used in the past was still valid and that the remedy (i.e., engineering or institutional controls) was still protective and functioning as designed.  Other consultants identified the continuing presence of residual contamination a REC notwithstanding regulatory approval. This was a significant concern since most cleanups now employ risk-based approaches where some remnant of contamination is allowed to remain so long as institutional or engineering controls are used to prevent unreasonable exposure to the residual contamination.

To promote more consistency in how these remediated RECs were described and presented in phase 1 reports, the ASTM E1527 task group revised the HREC definition and added the new CREC designation. The HREC term was intended to apply to cleanups that had achieved unrestricted residential cleanup standard while the CREC term for cleanups where residual contamination remained and the site was subject to institutional or engineering controls (known as Activity and Use Limitations or “AULs” in ASTM parlance).  As a result, there are now four types of conditions that may be identified in an ASTM E1527 phase 1 report: REC, HREC, CREC, and de minimis conditions.

The task group hoped that creating the CREC term would help alert purchasers if there were controls on future use of the property as well as develop plans for complying with the controls that are in place so that they can satisfy their post-acquisition “continuing obligations” and maintain their liability protections. A CREC will not require further action so long as the “controlled” conditions remain in effect.

As originally drafted, the CREC term would have been limited to circumstances where ECs/ICs were actually created or recorded against the property and the environmental professional would be required to verify that the EC/ICs were properly maintained/recorded. However, the environmental consultant representatives on the task force pushed back on these requirements, arguing they should not be put in the position to determine if a particular control was “enforceable.”  As a result, the final CREC definition selected by the task force group did not require consultants to actually verify that the controls are in place or are properly working. The final definition adopted by ASTM provides that a CREC is:

 “ a recognized environmental condition resulting from a past release of  hazardous substances or petroleum products that has been addressed to the satisfaction of the applicable regulatory authority (for example, as evidenced by the issuance of a no further action letter or equivalent, or meeting risk-based criteria established by regulatory authority), with hazardous substances or petroleum products allowed to remain in place subject to the implementation of required controls (for example, property use restrictions, activity and use limitations, institutional controls, or engineering controls).”  

Many of the lawyers on the legal subcommittee were opposed to the CREC definition. Several well-known and respected lawyers submitted negative comments during the balloting process, asserting that the CREC term added a needless level of complexity and was unnecessary because conditions that had been addressed to the satisfaction of regulators should be considered a “de minimis condition.”  One particularly prescient negative comment stated that the CREC term was inconsistent with the common understanding of the word “control” or “controlled” and was misleading because it implied that residual contamination was under “control” when it fact consultants were not required confirm that controls were actually in place and effective. The task group was also cautioned that term would be problematic in a number of states because of their approach to cleanups.  Despite these warnings, the ASTM task force found these negative comments “non-persuasive.”  

Because ASTM did not limit CRECs to those conditions where formal AULS have been implemented and did not require the consultant to verify if the “control” has been properly implemented and remains effective, the usefulness of CREC and the extent that an owner, lender or their counsel can rely on the designation will depend on the type of CRECs that exists for the property. At one end of the CREC continuum are those sites where enforceable AULs have been recorded against the property such as a deed restriction and the specific cleanup standards has been memorialized in the NFA letter. In such circumstances, then owner, its lender and counsel will be able to determine if “control” has in fact been implemented, can assess if it remains protective and if it continues to be in compliance with current cleanup standards.

At the other end of the spectrum are cleanups that were done without any oversight by the regulator (commonly known as “self-directed” or “at-risk” cleanups) where the developer or property owner implemented a cleanup on its own to avoid regulatory delays. Because the cleanup would not have been completed “the satisfaction of the applicable Regulatory Authority”, this cleanup would not qualify as a CREC and probably have to be identified as a REC subject to post-remedial confirmatory sampling. An exception would be if the cleanup was supervised by a licensed environmental professional in a state with a licensed environmental professional program such as Massachusetts, Connecticut or New Jersey and the licensed professional opines that the cleanup met “risk-based criteria established by regulatory authority”  

The more challenging CRECs will be those within the murky middle of the continuum where a regulator may have signed off on a cleanup without referencing a formal control. Many state regulators have signed off on risk-based cleanups without referencing any AULs, particularly with petroleum-contaminated sites where many state programs rely on natural degradation of petroleum and only require removal of grossly contaminated soils/source materials. There is still petroleum contamination in the ground but no actual “control” in place.  The contamination has been addressed to the satisfaction of the regulator but often times the records are archived or destroyed so the consultant cannot verify the actual levels that were left in the ground.  In such an instance, the note to the CREC definition advises consultants that they can look to the data and infer an implied a control!

In other words, the consultant can assume that if the site was a gas station or a commercial property with a UST, the cleanup was approved by the state on the condition that the property would continue to be used only for commercial purposes. Indeed, ASTM trainers are emphasizing to consultants that AULs are just one indication of a past of a past or present release but not the only evidence that a property may not be used for unrestricted use.  Consultants are also being instructed that if there are no formal AULs, they should look at the data and ask if the “dirt is eatable and the water drinkable”.  How this assumption is helpful to property owners and their lenders remains unclear.

Then there are the situations where regulatory controls may be implemented but human exposures remain because of the potential for vapor intrusion. Some states allow local governments to adopt groundwater ordinances that prohibit the use of groundwater to facilitate cleanups. The groundwater ordinance serves as a “control” that could qualify as a CREC. However, many states do not take into account potential human exposures from vapor intrusion. In such a situation, while the groundwater “control” is in place but human exposure is not controlled. This is particular so in states with dry cleaner trust funds. Most state programs rank sites for funding based solely on impacts to drinking water. If the groundwater is not used, the site will receive a low priority ranking for cleanup. While the property owner waits years for the dry cleaner fund to get around to funding the cleanup, the groundwater plume could be migrating off-site and posing a risk of vapor intrusion to nearby residences.  

For example, there was recent loan transaction involving a shopping center where a plume from a dry cleaner had migrated off-site and was within proximity to single-family residences.  Because the local government had passed a groundwater ordinance, the state issued an NFA letter. However, the soil gas near the residential community was 20 times the EPA residential screening level. In a different state where vapor intrusion is evaluated as part of a cleanup, closure would not have been granted, the dry cleaner plume would have been identified as a REC and the owner additional investigation would have been required to assess the extent of the REC. However, in this state which allowed for pathway elimination by ordinance, closure was granted and the dry cleaner contamination was identified as a CREC with no further investigation recommended even though there was a strong likelihood that human exposures were not “controlled”. In other words, the same condition in a different state would have a different designation even though in both situations human exposures were not controlled. 

In essence, because of the regulatory program of this state, what might have been a REC in another state was transformed into a Business Environmental Risk in the form of a potential toxic tort claim. Fortunately, counsel for both the lender and property owner recognized the potential liability and a pollution legal liability policy was obtained to protect against potential third party claims for bodily injury or property damage. 

Since the  ASTM Task Group declined to follow the prescient warnings of several seasoned environmental transactional attorneys and approved a flawed CREC definition, what are property owners, lenders or counsel to do? E1527-13 does require that CRECs be listed in the findings and conclusions section of a phase 1 report, and consultants are also required to explain their reasoning related to the impact of the CREC on the property. So users of phase 1 reports, particularly purchasers who will need to take comply with their continuing obligations to maintain liability protections (i.e., take reasonable steps to stop continuing releases and prevent exposure to existing releases), should carefully review the discussion of any CREC and be prepared to ask the consultants the following questions:

  • did they review the NFA letter or decision document by the licensed professional concluding that the cleanup met state standards;
  • identify what the cleanup standard was and if it remains in effect or has been changed since the NFA letter or its equivalent was issued;
  • identify the “controls” that it has identified as the basis for concluding the condition is a CREC;
  • have the consultant verify if the “control” has in fact been properly implemented (e.g., recorded in the land records, sub-slab depressurization is properly working, engineering control is properly maintained, etc) and remains protective of human health;
  • if the consultant is inferring a control, provide justification for concluding the control is applicable to the site; and
  • ask the consultant to determine if human exposures such as vapor intrusion are under “control”

If the environmental consultant cannot verify what cleanup standard was used or that it remains the correct standard, this could be viewed as a significant data gap that would have to be verified to be in compliance with AAI. If the consultant believes in its professional judgment that the condition is continuing to pose a risk of human exposure, the condition should be a REC and not a CREC even if regulatory closure has been granted-especially where the consultant is representing a purchaser. Appropriately identifying the condition as a REC early enough in the transaction will enable the parties to further evaluate the issue or negotiate some risk allocation mechanism for the condition.   

Until ASTM takes another look at the definition, owners and possessors of property should be prepared to ask hard questions of the environmental professionals to make sure that they are not lulled into a false sense of comfort only to inadvertently forfeit their liability protections because they failed to comply with “controls” they did not anticipate after they taking title or possession of the property.  

As we discussed in an article, lenders are positioned differently than property owners from a liability standpoint and therefore may have risk tolerances that are different from those who take title to potentially contaminated property.  Since understanding a CREC will likely be vital to maintaining liability protections, purchasers should not simply rely on consultants retained by their lenders but be prepared to retain their own professionals to independently verify the CRECs and their underlying controls.

Finally, do not forget that a CREC only applies to regulatory “controls” (i.e., institutional and engineering controls) and not human exposures. Purchasers should not assume that a CREC means human exposures are safely controlled. The purchaser who fails to have their consultant verify that if human exposures are under control may later learn that they have bought themselves into a toxic tort lawsuit.