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A closer look at the new ASTM E2018-15 Standard Guide for Property Condition Assessments

ASTM International, which provides product standards from surgical face masks to ski bindings to traffic paint to food service gloves also provides guidance for the commercial real estate industry due diligence process. One of the standards it provides is E 2018, the Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process.  Like all ASTM standards, this is subject to periodic review by a voluntary “task group” (made up of industry professionals including consultants and users), whom recently published revisions to the E2018 standard.   Following is a summary of these revisions, which is intended to give both consultants and clients an idea of the most important revisions, and to assume that almost all the other changes will not have a significant impact.

Why Changes Were Made

The overall goal of the changes to the standard was to enable more accurate identification of risks associated with building conditions during commercial real estate transactions and throughout property ownership.

One major change made to the guide is its ADA and FHAA Accessibility Survey discussions, and in the forms in Appendices X.2 and X.3. The committee determined that there is a wide range of detail levels desired by users.  In some cases, they may be best served by third party specialists. You will find general comments on this in the footnotes on page11 and 12 of the guide. The sections are entirely rewritten and the survey forms are now referred to as Uniform Abbreviated Screening Checklist.

Language Clarifications

The task group’s work included wordsmithing to clarify what was seen as possibly misleading language.  For example, the word “probable” is discontinued as it relates to “cost” throughout the guide. The guide’s definition of “cost” is ”opinion of costs that may be encountered in correction of physical deficiencies”. The committee determined that “probable” implied a greater degree of effort than is typically involved.

The consultant is now defined as “the entity or individual that prepares the PCR and that is responsible for completion of the PCR”.  Note that the formerly included statement “may be an employee of the user” is removed.

A “de minimis” condition is now defined as a “physical deficiency that is not material to the conclusions of the report”.  (I will discuss the new definition of “physical deficiency” a bit later on.)

Due diligence is now defined as “an investigation of the physical condition of a subject property in connection with a commercial real estate transaction. The degree and type of such survey and inquiry the investigation may vary for different properties, different user purposes, and time allotted.”

Expected useful life is now defined as “the average amount of time in years that an item, component or system is estimated to function without material repair when installed new and assuming routine maintenance is practiced.”

Immediate costs are opinions of costs that require immediate action as a result of any of the following: (1) material existing or potentially unsafe conditions, (2) material building or fire code violations, or (3) physical deficiencies that if left uncorrected would be expected to result in or contribute to critical element or system failure within one year or will result most probably in a significant escalation of its remedial cost.”  Physical deficiency is discussed in 2.3.25 below as well as 1.1.1.

Added Definitions

The following definitions have been added to the guide in order to standardize terms of condition comparison within the industry.

2.3.24 Physical condition – The physical state of a property, system, component or piece of equipment. Within the context of the assessment, the consultant may offer opinions of the physical condition of the property, or of systems, components and equipment observed. Such opinions commonly employ terms such as good, fair and poor; though additional terms such as excellent, satisfactory and unsatisfactory may also be used. Good condition – In working condition and does not require immediate or short term repairs above an agreed threshold. Fair condition – In working condition, but may require immediate or short term repairs above an agreed threshold* Poor condition – Not in working condition or requires immediate or short term repairs substantially above an agreed threshold.

2.3.25 Physical deficiency – A conspicuous defect or significant deferred maintenance of a subject property’s material systems, components, or equipment as observed during completion of the PCA. The term “completion of the PCA” is also a revision in paragraph 1.1.1. This definition specifically excludes deficiencies that may be remedied with routine maintenance, miscellaneous minor repairs, normal operating maintenance, etc., and excludes de minimis conditions that generally do not present material physical deficiencies of the subject property.

The paragraph in 2.3.30 Property Condition Assessment (PCA) has been significantly shortened: The process by which a person or entity observes a property, interviews sources, and reviews available documentation for the purpose of developing an opinion and preparing a PCR.

2.3.31 Property condition report (PCR) – A written report, prepared in accordance with the recommendations contained in this guide, documenting the observations and opinions developed during completion of the assessment.

2.3.38 Short-term costs – Opinions of costs to remedy physical deficiencies, such as deferred maintenance, which may not warrant immediate attention, but require repairs or replacements that should be undertaken on a priority basis in addition to routine preventive maintenance.

Revised Paragraphs

This paragraph limits the user who contracts with the consultant as the only entity who can rely on the report.  In 2.3.48, “user” is now clarified as the party that retains the consultant for the preparation of the PCA.

Paragraph 7.1 in Article 7 Document Review and Interviews has been shortened.  It now reads: “The objective of the document review and interviews is to augment the walk-through survey and to assist the consultant’s understanding of the subject property and identification of physical deficiencies. Records or documents, if readily available and reasonably ascertainable may be reviewed in completion of the assessment.”

Paragraph 7.1 Reliance has been removed. Paragraph 8.1 Objective has been shortened to: “The objective of the walk-through survey is to visually observe the subject property so as to obtain information on material systems and components.”

Section 9 Opinion of Costs – Because the manner of reporting long term costs can vary among users, they are addressed by footnote number 4 on page 15.  It states that: “This guide recognizes that most PCAs include some level of assessment of long-term costs. This guide recognizes that there are numerous methods and acceptable levels of long-term cost assessment that can be conducted as part of the PCA. Where such an assessment is desired, the method and level of assessment should be mutually agreed upon by the user and the consultant.”

Section 11 Out of Scope has a number of items relocated from elsewhere in the guide, as well as some new clarifications.  Consultants will need to confirm if this changes pre-existing arrangements with clients.

The changes are the result of lengthy process which included many group phone calls with representatives of due diligence firms, single practitioners, banks and other real estate professionals. Approval goes through an ASTM balloting protocol where every member of the ASTM Committee E50 on Environmental Assessment, Risk Management and Corrective Action is sent one. If there are negative ballots the task group has to satisfy the negative vote(s) until it’s (they’re) withdrawn (we all know that a camel is a horse designed by a committee!)

In summary, the changes to ASTM E 2018 Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process primarily serve to clarify the guidance and enable risk to be assessed more accurately during property condition assessments.