Legal Terrain

Our environmental group at Burns & Levison is often called in to support our real estate and corporate transactional groups on complex deals that involve an assessment of environmental conditions, compliance with regulatory standards, and risks. As part of the due diligence team, we provide guidance on purchase and sale agreements and site access agreements, and review of environmental disclosures and technical reports.

In the current climate, as PFAS regulations continue to evolve, one of the thorniest issues we face is whether to test for PFAS. With the reportable concentrations at such microscopic levels (20 parts per trillion for the PFAS 6 in Massachusetts; or EPA’s proposed National Primary Drinking Water Regulation with the infinitesimal Maximum Contaminant Levels of 4 parts per trillion for PFOA and PFOS individually, as well as hazard index levels for three other PFAS compounds and GenX Chemicals), the likelihood of exceeding a regulatory benchmark is very high.

Obtaining such a result from sampling during due diligence can be off-putting for the buyer, but they may also have a contractual out that will allow them to walk away from the acquisition. While the sellers who allow invasive testing for PFAS pre-closing could be saddled with an obligation to report the release to environmental regulators and the burden of complying with the statutory and regulatory requirements for more detailed assessments and remedial actions, which may make the property more challenging to market.

Part of the reason the implications are so stark for the two parties is a symptom of the dearth of effective remedial strategies. Without a clear remedial pathway, the unknowns of stepping into the chain of title for a PFAS-impacted property can be paralyzing.

The environmental community has seen this hurdle before. In the early days of G.L. c. 21E in Massachusetts, the hazardous waste cleanup law was a barrier to commerce. Buyers and sellers did not have predictable expectations to weigh the risks of taking title to a contaminated property. In response to that stunted market, environmental practitioners and regulators came together to craft amendments that privatized the remediation process.[1]

Under the revised 1993 MCP framework, buyers could work with licensed site professionals (LSPs) to estimate and quantify a given transaction’s risks and then set a purchase price that better reflected their full anticipated acquisition costs. Lawyers could use various levers in contracts or insurance products to offset risks and draft agreements to facilitate transfers of contaminated parcels. Allowing LSPs to exercise prudent scientific judgment to remediate contaminated properties unlocked the uncertainty imposed by the discovery of a release.

The advent and the prevalence of PFAS have brought us back to those uncertain and trying times. As with the pre-1993 Chapter 21E amendments, the real bugaboo is the potential for unknown liability. When a buyer considers the potential risks of obtaining a property that might contain PFAS, the parade of horribles is long and scary.[2]

But the reality is that every site is not the next environmental legal thriller. Low levels of PFAS on properties that are not imminently connected with the drinking water supply are not the likely cause of blockbuster damages or class action lawsuits. The bulk of the current large-scale actions are focused on the chemical manufacturers and purveyors of PFAS products. We are not seeing major actions for sites that are a mere pass-through for PFAS-containing products rather than a source of the release.

In the absence of greater clarity for the remediation costs, clients – both buyers and sellers – need a better rule of thumb for when to acquiesce to a request for on-site testing for PFAS.

To this end, a recent development in Connecticut provides some guidance. While Connecticut has not yet adopted a state-wide standard for PFAS, in anticipation of the evolving federal Superfund and Drinking Water Standards, Connecticut has announced changes to its Environmental Condition Assessment Form, which is part of its Transfer Act compliance. The form, which is officially required at the end of May 2023, sets out in bullet form a range of circumstances or historical business operations associated with trending emerging contaminants, including PFAS, 1, 4-Dioxane, and Perchlorate, and directs the certifying party and their licensed environmental professional to consider the extent to which the site checks the relevant boxes and then asks if the professionals tested for any emerging contaminants and demands an explanation for a decision not to test.

While not perfect, the Connecticut approach establishes some reasonable parameters to urge parties to take extra consideration for those sites and activities that are likely to have some liability for introducing PFAS into the environment and allows for some understanding if there is an explanation for why a particular site might not require the heightened scrutiny of PFAS testing. For sites outside of Connecticut, this approach can be replicated through a diligent ASTM Phase I inquiry using the new 1537-21 standard and expressly opting to include PFAS as a non-scope consideration.

The results of a close site-specific inquiry can provide a good rubric for guiding both buyers and sellers about the prudence of conducting PFAS testing during due diligence. While the data could introduce some uncertainty to the deal, for sites with a logical historic connection to PFAS, knowing the existing contamination can allow parties to structure the transaction and allocate the environmental risk so that the deal can potentially proceed to fruition.

[1] For a discussion of the evolution of G.L. c. 21E and the privatized MCP, see John F. Shea’s excellent chapter on Hazardous Waste Cleanup in the MCLE treatise, Massachusetts Environmental Law, ENV MA-CLE 22-1.

[2] This week Kidde-Fenwal, a provider of fire control systems that used PFOS-containing foams, filed for bankruptcy citing the massive liability associated with its National Foam division.