PFAS: No Longer “Non-Scope”

Published On: June 11, 2024

In April 2024, the United States Environmental Protection Agency (EPA) issued a notice that a final rule for publication will be submitted, designating Per- and Polyfluoroalkyl Substances (PFAS) as “hazardous substances” under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The final rule was published on May 8, 2024, with an effective date of July 8, 2024. Once effective, it is anticipated that the EPA’s hazardous substance designation will have a profound effect on environmental due diligence as it relates to real estate transactions.

PFAS are a group of more than 7,000 chemicals containing fluorine that were first used in the 1940s. Perfluorooctanesulfonic Acid (PFOS) and Perfluorooctanoic Acid (PFOA) have been the most widely manufactured PFAS compounds. PFAS compounds can persist in the environment indefinitely and have a tendency to accumulate within the bodies of organisms.  PFAS compounds have been used in many products and industries due to their chemical properties, and they are ideal for use in fire-resistant products, as well as water and oil resistant products.

The EPA’s designation of PFOS and PFOA as hazardous substances is designed to ensure prompt cleanup and require responsible parties to pay for the remediation of PFOS and PFOA compounds. The designation of PFAS compounds as hazardous substances requires that releases of PFAS compounds into the environment to be reported to federal, state, local and/or tribal environmental regulatory agencies. The EPA’s statutory authority allows it to respond to releases of hazardous substances and initiate cleanup activities. By designating PFOS and PFOA as hazardous substances, the EPA gains additional authority to investigate and remediate releases and pursue responsible parties for reimbursement of costs related to response/remediation activities.

One of CERCLA’s foundational principles is that potentially responsible parties (PRPs) are held accountable for costs incurred as part of the response and cleanup activities related to releases of PFAS compounds that they are responsible for. CERCLA defines PRPs as:

  • Past and present owners of a facility where hazardous substances occur,
  • Past and present operators of a facility,
  • Those who arrange for the disposal or treatment of hazardous substances at a facility, and
  • Transporters of hazardous substances to a facility.

The EPA’s PFOS/PFOA designation has significant implications for environmental due diligence as it relates to real estate transactions. Prior to the designation, PFAS compounds were addressed in ASTM’s Standard Practice for Phase I Environmental Site Assessments (Phase I ESAs) as an emerging contaminant that was not within the scope of the Phase I ESA. Once the final rule becomes effective in July 2024, PFOS and PFOA will be equivalent with other hazardous substances regarding CERCLA liability.

Environmental professionals conducting Phase I ESAs will now have to consider PFOS and PFOA as being within the scope of Phase I ESAs. The new designation highlights the need for more robust real estate environmental due diligence, specifically in the following areas:

  • More Robust Phase I ESAs: Phase I ESAs will likely include additional research and review of past property use(s), as well as additional interviews with key site personnel regarding Site use.
  • Potential Delays and Increased Costs: The discovery of PFOS/PFOA contamination may result in delays in closing property transactions and/or increased costs due to the need for a Phase II Subsurface Investigation as part of the due diligence process.
  • The Need to Reassess Some Sites: Some sites where no Recognized Environmental Conditions (RECs) were identified during previous Phase I ESAs, may now have RECs related to PFAS.
  • Contractual Allocation of Liability: In anticipation of potentially high remediation costs, purchase contracts may focus more on liability allocation, remedies, and other means of protection.

Navigating transactions involving real estate with the potential for PFAS contamination will require a more calculated approach. Real estate professionals, property owners, and potential purchasers will need to stay informed regarding the regulations. Seeking advice from environmental consultants and attorneys will be key in making informed decisions regarding the risk associated with PFAS in real estate transactions.

Register for our upcoming webinar on the topic on June 27.

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