The unique chemical and physical properties, toxicity, and ubiquitous nature of per- and poly-fluoroalkyl substances, known as PFAS, is of growing concern to the environmental regulatory community.
What are PFAS?
Often referred to as “forever chemicals,” PFAS are a group of man-made chemicals existing in a wide array of consumer products and industrial materials, as well as in solid and liquid waste streams. Potential and probable adverse human health effects are being attributed to PFAS exposure.
As the Environmental Protection Agency (EPA) and state agencies take aggressive measures to research, restrict, and remediate this family of chemicals, potential impacts to the development and commercial real estate markets are beginning to surface.
PFAS are designed to repel water and oil, not degrade under high or low temperatures, and reduce friction. Unfortunately, due to their unique properties, these chemicals do not naturally break down when released in the environment and represent a long-term environmental liability.
PFAS compounds are used in many consumer and industrial products ranging from floor polish, water-proof fabrics, fire-suppressing foam, stain-resistant carpets, non-stick cooking pans, and dental floss.
As a result of their wide-spread application, the use and disposal of PFAS-containing materials has resulted in the identification of its presence in air, soil, water, animal tissue, and even human blood.
Top PFAS Concerns in Development
PFAS has seen steadily increasing regulation since the late 1990s. As wide-spread identification of PFAS in the environment increases and ties to human toxicity become better understood, the EPA released a proposal to designate two forms of PFAS (PFOA and PFOS) as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) in August 2022. If approved, the designation would be finalized in summer 2023 and will drive increased due diligence awareness during property development and transactions.
A Phase I Environmental Site Assessment (ESA) is a critical component of the due diligence process of a commercial real estate and/or development transaction. Phase I ESAs are useful in identifying the presence of a Recognized Environmental Condition (REC).
Until PFAS meet the EPA classification as a “hazardous substance,” the historical use of PFAS on a property and even the identification of it in soil or groundwater media at a property do not meet the definition of a REC. The latest standard for Phase 1 ESAs (ASTM E1527-21) designates PFAS as “emerging contaminants” that are technically out of scope, therefore not requiring a PFAS discussion. However, the ASTM standard provides that PFAS may be added to the scope of the Phase I ESA as a “Non-Scope Consideration” if requested.
If a developer conducted a Phase I ESA while PFAS is still considered a non-scope item and PFAS contamination or historical use was identified, it would be considered a Business Environmental Risk (BER). If the property were assessed after the EPA designates PFAS as a hazardous substance, PFAS contamination or the possible presence of PFAS would then meet the definition as a REC and could cause significant impact on financing, additional investigation requirements, possible remediation or mitigation, development delays, and probable cost overruns.
While PFAS does not presently create issues for commercial transactions and development projects based on a simple definition, the fact that PFAS is creating a long-term environmental liability should be of concern to lenders and developers alike. Taking a proactive approach in working with a third-party consultant, like FirstCarbon Solutions (FCS), who understands this rapidly evolving climate is critical in identifying current risks to real estate assets and/or preventing acquiring assets with long-term liability.
Certain types of development carry a much higher probability for the likely presence of PFAS contamination. The EPA has released a non-exhaustive list of potentially affected industries and sites including airports/aviation and department of defense sites, chemical manufacturers, landfill sites, food packaging, and biosolid application sites.
Non-traditional entities such as publicly owned treatments works (POTWs) or wastewater treatment plants are also being scrutinized as possible locations where the presence of PFAS in influent, effluent, and byproduct waste streams are being identified as probable contributors of point-of-release of PFAS to the environment.
Likewise, public or private utilities providing potable water service are required to test for PFOS and PFOA. If detected above certain levels, utilities may be required to notify consumers, take steps to determine the source of contamination, and abate these substances to concentrations deemed nonthreatening to human health.
Even though a property may not have direct PFAS exposure, it may still be impacted from an off-site source via surface water, groundwater, soil erosion movement, or even air particulate disposition. While not identified as a potentially responsible party (PRP) that could be responsible for the costs of investigation and cleanup, the identification of PFAS or other chemicals migrating onto or beneath a property could potentially impact a development project.
Another important consideration for off-site PFAS contamination is how that contamination may impact drinking water supplies (surface and groundwater alike). The long history of unregulated PFAS use and inability for these chemicals to break down in the environment has contributed to their presence being identified in water resources across the U.S.
Because PFAS is suspected to elicit a human toxicity and even carcinogenic response at extremely low concentrations, it does not take much PFAS to contaminate water to unacceptable levels. The presence of PFAS may impact water supply for future development projects resulting in mitigation consideration for treatment or alternative sourcing, both of potentially increasing costs and creating project delays, downsizing developments, or even denial of a proposal.
Legal and Financial Concerns
Legal wrangling surrounding PFAS can be tracked to as early as July 1999 when private plaintiffs sued DuPont in the U.S. District Court for the Southern District of West Virginia, alleging several hundred cows died after drinking from streams and ponds near an alleged DuPont PFOA landfill.
Since then, numerous class action PFAS-related lawsuits have been filed placing PFAS under greater scrutiny. The fact that many of these claims have proceeded opens the door to a potential increase in PFAS-related litigation across numerous industries. If a property is identified as a potential source of PFAS contamination, it could drastically reduce its value and its owners could be pulled into litigation.
Taking the necessary safeguard of performing a Phase I ESA is an important step to establish any historic or current use of the property that may have contributed to the existence or possible existence of PFAS on-site. This information is critical in establishing limited liability protections as well as determining if a development project could be impacted.
PFAS concerns are just one of many issues demanding attention for commercial real estate transactions or upcoming development projects. As we anticipate the EPA’s forthcoming ruling determining if PFAS will be listed as a hazardous substance and watch current litigation unfold, taking a proactive approach to evaluate and protect your projects is critical. With a quickly evolving regulatory atmosphere requiring more testing and control of PFAS materials and their waste streams, it is imperative to consult with experts to gain a holistic view of your situation and options.
FCS has extensive expertise in assisting our clients with complex environmental liabilities. Along with Cameron-Cole, also an ADEC organization, we provide technical support to clients addressing regulatory response, seeking funding, and litigating against the manufacturers of PFAS. Contact us for a free consultation to discuss your current and potential future obligations and how to prepare for the response to the latest PFAS regulations.