PFAS: Due Diligence and Risk Assessment in Real Estate Transactions

Environmental Update

Date: May 07, 2020

Based on the recent regulatory focus, public scrutiny and litigation relating to PFAS, parties to a real property transaction need to ensure that PFAS are included in the risk assessment of any deal. “PFAS” is a category of over 6,000 per- and polyfluoroalkyl compounds that include perfluorooctane sulfonate (PFOS) and perfluorooctanic acid (PFOA). PFAS, sometimes referred to as “forever chemicals” because of their strong chemical makeup and persistence in the environment, will remain front and center with the U.S. Environmental Protection Agency, the Department of Defense, citizens groups and nearly every state, and therefore need to be considered in any real property transaction.

PFAS compounds impact many transactions because they are ubiquitous in the environment and found in many products, including stain- and water-repellent fabric; non-stick products (e.g., non-stick cookware); certain cosmetics, shampoo, conditioners, hand creams, sunscreen, toothpaste and dental floss; polishes, waxes and paints; cleaning products; firefighting foams; aerospace/aviation products; photographic anti-reflective coatings; mist-suppressant foams for electroplating; car wax; popcorn bags; waterproof/breathable clothing; architectural composite resins; and paper and cardboard coatings. PFOS and PFOA compounds have been phased out of production in the United States, but they are still imported in consumer products.

Ensure PFAS Is Included in Environmental Diligence

In order to avoid potentially costly and long-term cleanups or litigation, buyers need to assess PFAS risks in any transaction. In most real property purchases, a buyer attempts to meet all appropriate inquiry and exercise due care in order to attempt to obtain prospective purchaser defenses. It is important that a buyer retain a qualified consultant and counsel to assess the potential PFAS risk relating to any business or property being acquired.

PFAS are not currently listed as hazardous substances under the Comprehensive Environmental Response Compensation and Liability Act, and the applicable standards for conducting a Phase I environmental site assessment (ESA), ASTM 1527, do not currently include PFAS in the definition of hazardous substances, so PFAS currently are considered out of scope for an ASTM 1527 Phase I ESA. In April 2019, the ASTM standards included a footnote regarding non-scope considerations to acknowledge growing regulator attention to emerging contaminants, especially PFAS. At this time, chemicals will not be expressly named in the standards, but language will be added to alert Phase I ESA providers that releases of chemicals that are not classified as “hazardous substances” for compliance with federal regulation may be considered “in scope” for compliance with state regulations and contractual obligations. In most cases, PFAS should be added as non-scope items to a Phase I ESA.

Potential Red Flag PFAS Issues

A purchaser should consider whether any potential red flag PFAS activities occurred on or near the property or relate to the characteristics or business activities of the target, including the following:

  • The manufacture of PFAS chemicals or firefighting foam;
  • The supply of products containing PFAS to a third-party manufacturer;
  • The manufacture or treatment of products to make them water or oil resistant (or the use of fabric protection products or similar materials in large volumes);
  • The disposal of large volumes of consumer or industrial products containing PFAS;
  • Firefighter training activities;
  • The occurrence of an industrial fire or major accident;
  • The existence of a landfill, airport or military base on or near the property;
  • Known PFAS contamination on-site in a location near municipal or private drinking water sources or surface water;
  • A history of PFAS-related claims by workers; and
  • The use of fume suppressants in electroplating.

In the event that a PFAS risk is identified in a transaction, the parties will need to determine how to allocate the potential risk. Purchasers should be aware that sites that obtained regulatory closure in the past may be reopened due to PFAS concerns. Though a buyer may insist on Phase II sampling to confirm whether PFAS are present, Phase II sampling can be challenging because of cross-contamination risks and the lack of standard methods for sampling. Additionally, it is important to assess what regulatory standards would even apply based on the location of the facility and the changing regulatory obligations.

Tips for Addressing PFAS Issues in Transactions

First, make sure PFAS are covered in the scope of diligence and in the deal documents (e.g., definition of “hazardous substances” and representations and warranties). Older purchase agreement forms may not cover PFAS. Next, assess whether there are state regulations that govern PFAS remediation and reporting obligations. The laws regarding emerging contaminants are changing every day and need to be assessed. Finally, work with qualified environmental counsel and consultants to understand and develop creative solutions to allocate PFAS risk. Options to address PFAS concerns include indemnities, releases, environmental insurance and deed restrictions.

FOR MORE INFORMATION

For more information, please contact:

Heather A. (Austin) Richardson
212.908.3998
Heather.Richardson@ThompsonHine.com

or any member of the Environmental group.

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