VOL. CLXXXIII – NO. 13 – INDEX 1141 MARCH 27, 2006 ESTABLISHED 1878

This article is reprinted with permission from the MARCH 27, 2006 issue of the New Jersey Law Journal. ©2006 ALM Properties, Inc. Further duplication without permission is prohibited. All rights reserved.

REAL ESTATE & TITLE INSURANCE

By Mitchell H. Kizner and Donna T. Urban

Purchasers of properties subjectedto a discharge of hazardous sub-stances too often proceed with the

mistaken belief that they will be pro-tected from future liability for cleanupcosts as long as the seller has, or willreceive, a “No Further Action Letter”(NFA) from the New Jersey Departmentof Environmental Protection. The reali-ty, however, is that the issuance of a NoFurther Action Letter does not meanthat environmental obligations concern-ing a discharge have been satisfied withfinality. Recent revisions by the NJDEPto its groundwater quality standards andan upcoming adoption of its soil reme-diation standards underscore the factthat in various circumstances, theissuance of an NFA will not protect abuyer from being called upon in thefuture, at substantial expense, to per-form tasks concerning prior releasesinto the environment which it had norole in creating. There are large risks ifthe buyer of a property regards an NFAas the end of the inquiry into obligationsconcerning the environmental conditionof a site.

Purchasers that buy sites requiringfurther environmental assessment,

remediation or maintenance can becompelled by governmental authoritiesto perform those tasks even if they hadnothing to do with the contamination.Under the New Jersey SpillCompensation and Control Act, pur-chasers of contaminated properties canbe held liable for the cost of cleaning upspills that occurred prior to their owner-ship, unless they follow certain pre-scribed due diligence requirements.

While special protection is affordedto buyers of property purchased afterJanuary 6, 1998 (the effective date ofthe Brownfield and Contaminated SiteRemediation Act), in reliance upon theprior issuance of a No Further ActionLetter for the site, even this protection islimited. N.J.S.A. 58:10-23.11gd(2)(e)and 58:23.11gf. For instance, there is noliability protection to a buyer who reliessolely upon a previously issued NFA fordischarges that occur between theissuance of the NFA and the purchase ofthe property. N.J.S.A. 58:10-23.11gd(2)(e). A buyer is likewise notabsolved of liability for discharges thatmigrate offsite of the property coveredby the NFA, or for failure to maintaininstitutional or engineering controls onthe property, or otherwise comply withthe conditions of the NFA. Id. And ofcourse, apart from legal liability forcleanup costs, the existence of unex-pected, continued environmentalimpairments concerning a property willreduce the value of a buyer’s investmentin that property.

Furthermore, the NJDEP issuesNFAs based upon information availableto it at the time. The Department canrescind or modify the NFA to requireadditional remediation in various cir-cumstances such as where: (1) it adoptsan amendment to a remediation stan-dard that decreases the standard by anorder of magnitude after the issuance ofa NFA; (2) a discharge that occurredprior to the issuance of a NFA is discov-ered after the issuance of the NFA; (3) acontaminant exposure pathway from adischarge that predates the NFA is iden-tified after the NFA is issued; (4) theperson who acquires the property failsto comply with the conditions of theNFA; or (5) the approved remediation isno longer protective of public health,safety and the environment. N.J.A.C.7:26C-2.6(d). Moreover, the NJDEPcan rescind an NFA if it later discoversthat information was withheld from theDEP prior to its issuance.

It must also be recognized that notall NFAs are alike. Some NFAs areissued without conditions or restrictionswhile some are conditioned upon fur-ther specific requirements. Andalthough an unconditional NFA pro-vides strong protection against futureenvironmental obligations, that protec-tion is not absolute.

An unconditional NFA can be re-opened by the NJDEP if remedial stan-dards for a particular chemical of con-cern are strengthened by at least anorder of magnitude. The provision forreopening of NFAs in the face ofstrengthened environmental standards isnot merely academic — in November

Buyer may face future liability for environmental cleanup costs

Kizner and Urban, shareholders atFlaster/Greenberg of Cherry Hill, aremembers of the firm’s environmental lawpractice group.

No Further Action Letter Could Be Unreliable

2005, the NJDEP adopted new ground-water quality standards that increasedby an order of magnitude or moreaction levels for various contaminantsin groundwater. N.J.A.C. 7:9C. Also,the NJDEP has announced proposednew soil remediation standards, which,if promulgated, would decrease theconcentrations allowable for a widerange of chemical constituents by morethan an order of magnitude. Theseinclude, but are not limited to, ethyl-benzene, toluene, naphthalene, 1,1,2,2-Tetrachloroethane and 1,1,2-Trichloroethane. It remains to be seenwhether and to what extent the NJDEPwill revisit cases “closed” with NFAs torequire compliance with the new stan-dards, but it would not be surprising if,at a minimum, previously issued NFAswould be re-examined in such pendingcases as those involving purchases sub-ject to the Industrial Site Recovery Act(ISRA), or where an NFA has beenissued for a limited area of concern, butnot yet for the entire site.

Conditional NFAs provide evenless protection to a buyer. An NFA maybe conditioned upon a variety of events,perhaps the most common being thatwhich accompanies a “classificationexception area” (CEA) for groundwa-ter. N.J.A.C. 7:26E-8.3. The NJDEPwill allow a classification exceptionarea — groundwater pollution in alocalized area in excess of cleanup stan-dards that is allowed to remain for atemporary period — when the NJDEPis convinced that it is likely that theapplicable groundwater standard will bemet though natural attenuation of thecontaminants within a predeterminedperiod of time.

The risk in purchasing a propertycovered with a CEA is that in manyinstances, the groundwater will notclean up as expected and the NJDEPwill wind up terminating the CEA andrevoking the conditional NFA thataccompanied it. In that instance, theresponsible party, which may now con-sist only of the new owner if the formerowner is no longer available, may berequired to utilize costly active remedi-

ation techniques such as pump and treator oxygen release compounds toaddress the contamination.Furthermore, while the NJDEP previ-ously had been content to allow respon-sible parties to demonstrate at the endof the duration period set forth in theCEA that the groundwater cleaned up asexpected, it is now often requiring thatperiodic testing be undertaken after theissuance of the NFA to make sure that agradual reduction in contamination lev-els is being achieved. See N.J.A.C.7:26E-8.4.

NFAs can also be conditioned upon

the maintenance of institutional or engi-neering controls, which are embodied indeed restrictions. Institutional controlsprimarily involve restricting a propertyto nonresidential use so that morelenient soil cleanup standards can beused for a site. Engineering controlsoften consist of the capping of contami-nated soil to protect the public fromexposure and prevent further migrationinto the groundwater, or the placing offencing around such soil to preventhuman contact.

Buyers purchasing property subjectto these controls must be advisedbeforehand that the NJDEP requires theresponsible party to submit biennialcertifications, which often require the

input of qualified professionals, con-firming that the controls in question areeffective. If, for example, the control isnot serving its purpose or if repairs needto be made in asphalt caps, the NJDEPwill require further work to be under-taken. If the seller or other responsibleparty is no longer present or financiallyable to bear these costs, the expense ofdoing so will fall upon the new owner.

The imposition of institutional orengineering controls may have othernegative financial repercussions on anew owner. While efforts can be madeat a later time to gain NJDEP approvalto modify a control, the existence ofcapping, fencing, or inability to use theproperty for residential use can obvi-ously affect future development plansfor the site. Secondly, the existence ofsuch controls will appear prominentlyin a title report and make it more diffi-cult to later sell or obtain financing forthe property. Indeed, it is likely that anysite bearing such a restriction will tosome extent suffer a diminution invalue due to the continuing existence ofthe control.

In conclusion, given the potentiallack of finality of NFAs, a purchaser ofa contaminated site in New Jersey can-not rely solely upon NFA for protectionagainst liability for future, often costly,remediation obligations. A buyer’sattorney should determine whether fur-ther cleanup costs may be lurkingbehind previously issued NFA and con-sider whether the real estate contract orother form of protection should providea mechanism to deal with the paymentof those expenses. Similarly, the char-acteristics of those NFAs to be soughtin the future should be agreed to inadvance and set forth in the contractalong with provisions allocating liabili-ty and securing payment for futureenvironmental expenditures. The bot-tom line is that purchasers should notproceed with transactions expectingthat they will have no remediationobligations for old spills that they didnot cause, and then learn after the salethat they may face significant expendi-tures for those discharges. ■

2 NEW JERSEY LAW JOURNAL, MARCH 27, 2006 183 N.J.L.J. 1141

There are large risks if thebuyer of a property regardsan NFA as the end of theinquiry into obligations con-cerning the environmentalcondition of a site.