Environmental Law Blog

News and Updates in Environmental Law Issues

A blog by attorneys
from Waters
McPherson
McNeill, P.C.

Innocent Purchaser - Protection Against Groundwater Claims in the Age of the LSRPs

Posted on Friday, May 6, 2016

Buyers of commercial property in NJ are faced with the challenge of determining at what point they, as owners, will no longer be subject to claims concerning contaminated groundwater at their properties.

The introduction of Licensed Site Remediation Professionals (“LSRPs”) into the “mix” as licensed agents for the DEP often makes matters more complicated.  While these LSRPs are authorized to adopt groundwater clean-up plans (“RAWP”) and no further action (“RAO”) determinations, the DEP has not totally abdicated its supervisory role as to matters involving groundwater.

This makes it difficult in many instances for prospective purchasers to determine at what point to acquire title to a polluted property and be assured that they will have no liability for claims relating to polluting operations at the property which preceded them.

Here are some oft-asked questions and general observations which may shed light on the dilemma and possible solutions.  In a recent blog, we focused on soil related clean-up claims.  This column focuses on groundwater.

1.         Can I take title to a property with contaminated groundwater prior to the issuance of a site-wide RAO letter without exposing myself to liability?

COMMENT:  Yes, if you can’t wait for an RAO and the intended clean-up plan (“RAWP”) for groundwater will not materially interfere with your use of the property, you can retain a consultant to prepare your own preliminary assessment report (“PAR”) – (not simply a Phase I) prior to acquiring title.  If the Seller has agreed to undertake the clean-up, your consultant should evaluate whether the Seller’s LSRP’s conclusions are well founded, and contamination is properly being addressed – especially relating to impacts from contaminated groundwater migrating off of the property (see Comment to question #3 below).  This entitles you to “innocent purchaser” protection against future claims for clean-up costs.  Also realize that the Seller’s LSRP’s adopted RAWP is not effective for a period of 60 days after its submission to the DEP so the DEP may comment or intervene.

2.         Must my consultant be a licensed LSRP in the circumstances described in question #1?

COMMENT:  Not if the Seller is obligated to deliver a site-wide RAO letter post-closing.

3.         Why should the migration of contaminated groundwater off of the site I am purchasing be my concern if the Seller is addressing it?

COMMENT:  Your “innocent purchaser” protection doesn’t extend to claims by third parties for losses as a result of bodily injury or property damage.  Thus, an injured party could sue you as the new owner of the property.

4.         If I choose to rely on the Seller’s LSRP’s site-wide RAO letter, will this provide sufficient protection?

COMMENT:  It should - provided the DEP hasn’t acted to revoke or to modify the RAO prior to your acquiring title.  The DEP has the right to audit an RAO letter and to revoke/modify it within three years from the date of its issuance.

5.         Is there a reason for me to conduct environmental due diligence if the Seller’s LSRP has issued a recent site-wide RAO letter?

COMMENT:  Yes, to update the RAO through the date of closing and to determine if any surrounding property owners or agency contests the conclusions in your Seller’s LSRP’s RAO letter.

The DEP may challenge the position that you, as Buyer, reasonably relied on an RAO if at the time of purchase, others have challenged your Seller’s LSRP’s conclusions, for example, that no contaminated groundwater has left its property.

6.         Can I get insurance to protect against the DEP re-opening an RAO?

COMMENT:  Yes, in conjunction with certain types of environmental coverage and subject to a deductible.

You’ll need good legal advice on how to draft your purchase contract – and concerning the procurement of insurance whether you’re the Buyer or the Seller.

Questions or comments:  contact Steve Gray (201) 330-7459 or e-mail at sgray@lawwmm.com.

STAY TUNED for further observations regarding how River clean-ups may impact you as an owner of property.

Disclaimer:  This is not intended as legal advice.  The facts of your particular circumstances will dictate the legal advice that is required.



ALERT - GROUNDWATER CLAIMS ARE RISING IN NJ AND AN RAO MAY NOT SUFFICE

Posted on Friday, February 3, 2017 by Steven R. Gray

OFTEN HEARD COMPLAINT:

            This addresses the uncertainty which prospective purchasers of contaminated property in New Jersey often face at the time of acquisition of title, when a soil clean-up has been completed but an ongoing investigation of contaminated groundwater (being conducted by others) is ongoing.  Such groundwater contamination often has migrated (or it has the potential to migrate) off of the property being purchased and onto neighboring properties.  Often this groundwater has become co-mingled with contaminated groundwater emanating from neighboring properties.

THE DILEMMA - INNOCENT PURCHASER LIABILITY:

            There are many statutes intended to protect a person who acquires property after a discharge occurs, and who relies on investigation and clean-up being done by its seller or others.  These statutes are not always consistent.  Here are the issues which most often arise:

            1.         Absent a statutory defense, every property owner in the chain of title is strictly liable for environmental conditions on or emanating from their property

            2.         A property owner who conducts a preliminary assessment of environmental conditions prior to closing is only “innocent” (not liable for) as to conditions which are unknown or not discovered at the time of closing.

            3.         A purchaser who conducts proper due diligence and relies on a no further action determination (a/k/a Remedial Action Outcome (“RAO”) Letter) obtained by others, should, according to the NJ Spill Act (“Spill Act”), be immune from claims for clean-up costs or for any other damages to the State or to other persons “but the same statute which confers this immunity qualifies it by stating that such compliance shall not relieve any person of liability for a discharge that is off the site of the property” covered by the RAO (NJSA 58.10-23.11g(d)(2)(e)).

            4.         A 2005 amendment to the Spill Act (NJSA 58:10-23.11f22) intended to give a prospective purchaser additional immunity from claims resulting from migration of contaminated groundwater off that person’s property when co-mingled groundwater contamination from a neighboring property is of the same variety; this amendment also qualifies that immunity as limited to claims for “clean-up and removal costs”.

POSSIBLE OPTIONS TO SHORE UP “INNOCENT PURCHASER” STATUTE:

            Each case is unique to its facts, and while not intended as legal advice, there are general guidelines available to prospective purchasers for better protection against post-closing damage claims:

            1.         Don’t acquire title until after your Seller obtains a site wide RAO, and consider environmental insurance to protect against the possibility that the DEP may audit/revoke an RAO.

            2.         If your seller indemnifies you for claims relating to an ongoing clean-up of contaminated groundwater, try to obtain alternate security if there’s a danger your seller may not have sufficient assets to satisfy such claims.

            3.         If, despite a seller’s indemnity, your seller doesn’t defend a remedial RAO in a timely manner, you should have the option to undertake the defense yourself; defense and expert costs to remediate or revoke a groundwater RAO will be significant.

            4.         Considering escrowing sufficient funds at closing to pay the deductible required for a claim under an environmental insurance policy.

Comments or questions, contact Steve Gray at (201) 330-7459; sgray@lawwmm.com.



A Patchwork Quilt of Statutory Protections Regarding Liability for Environmental Conditions: Are They Enough to Protect You?

Posted on Thursday, October 22, 2015 by Steven R. Gray

A Patchwork Quilt of Statutory Protections Regarding Liability for Environmental Conditions:  Are They Enough to Protect You?

Over the years, both the NJ Spill Act and the Brownfield Act have been amended several times to protect current “innocent” owners and prospective purchasers of land from liability for environmental contamination caused by others.  The result has not been uniform, and there are questions that land owners and prospective purchasers need to answer with advice of experienced counsel to put themselves in the best position to be free of such liability.

Here are a few questions often asked along with general answers (which need to be tailored to your factual circumstances):

1.         Did something happen recently which would cause me to revisit this issue?

Yes, Rivers and their tributaries are more often being designated as Superfund sites.  Past and current properties along those streams which historically have been used for industrial and operations, are subject to claims from Federal and State agencies and groups of private companies (PRPs) are managing those clean-ups.  Both contaminated groundwater and stormwater runoff are the concern.

2.         If neither I, as the owner, nor any of my tenants, were the source of that contamination, do I have reason for concern?

Yes, landowners are strictly liable for contamination which occurred historically at a property, and courts recently have been cutting back on giving “innocent” owners a “free pass” for such liability unless they conducted proper due diligence.  See e.g. New Jersey Schs. Dev. Auth. v. Marcantuone, 428 N.J. Super. 546, 560 (App. Div.).

3.         What happened to my status as an “innocent purchaser”?

Nothing, if at the time of purchase, you formally complied with the prerequisites to legally establish your status as an “innocent purchaser”.  The Phase I report prepared for your lender does not protect you if you acquired property after September 14, 1993 (unless the Phase I also met the prerequisites for a Preliminary Assessment Report/ Site Investigation (RAR) established by the DEP).

4.         And what if I acquired the land prior to September 14, 1993?

In that case, you are considered an “innocent purchaser” if you neither knew or had reason to know about the contamination after undertaking due diligence based upon “generally accepted good and customary standards” (i.e. a subjective test).

5.         Isn’t this is old news, and why should I have reason to be concerned, because my predecessor has its consultant cleaning up the contamination?

If you’re concerned about the marketability of your property, a purchaser and its lender will be reluctant to proceed with a purchase until the soil has fully been remediated and groundwater contamination is under control.  DEP recently delegated to private Licensed Site Remediation Professionals (LSRPs) supervisory authority over those clean-ups; the DEP guidelines may not require those clean-ups to be completed for years.

6.         Do I have any control over the pace of a clean-up being done by others?

If  you’re acquiring a contaminated property subject to an ongoing clean-up, you’ll want to make sure that  you do have a say in the pace of a clean-up and the remedy selected for the clean-up to assure that it has the least intrusive impact on present and planned future activities on your land.  Also, you’ll want to be sure that adequate security for such a clean-up is maintained by your predecessor in the event your Seller leaves the clean-up unfinished or has insufficient assets to complete the required work.

RECOMMENDATION:  Be proactive in assuring you’ve met the requirements to legally be considered an “innocent purchaser” and that any clean-up being done by others doesn’t interfere with the use of your land.

TO BE CONTINUED:  Next Time:  Why suddenly are groundwater contaminations claims on everyone’s radar and how a landowner protects against them?

Questions or comments:  contact Steve Gray (201) 330-7459 or e-mail at sgray@lawwmm.com.

Disclaimer:  This is not intended as legal advice.  The facts of your particular circumstances will dictate the legal advice that is required.

 

 

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Court Considers Value of Wetlands

Posted on Monday, June 23, 2014 by Susan C. Gieser

Court Considers Value of Wetlands

The New Jersey Appellate Division recently ordered that hearings must be conducted prior to takings of property in New Jersey where zoning changes may occur.  The matter involved the valuation of one acre of vacant land in North Bergen being acquired by New Jersey Transit Corporation.  Within this land were wetlands, under the jurisdiction of the United States Army Corps of Engineers (ACOE).  Amongst the parties, it was being disputed as to whether the value of the land should be considered as the best and highest use of the land, a two-story self-storage facility, or rather wetlands.  According to Mori, the defendant, the ACOE would have granted a Section 404 permit, which would have authorized filling wetlands for the proposed private development.  The recent decision in New Jersey Transit Corporation v. Mori reasoned that in order to fairly value the property being taken a pre-trial N.J.R.E 104 hearing must be conducted, and it must be determined whether there is a reasonable probability that a zoning change will occur on the disputed land.  They determined that the trial court prematurely determined that a Section 404 permit would have been approved without providing for a fair pre-trial hearing.

The Court cited a recent decision, in which the Supreme Court of New Jersey further reasoned that a “taking” must be properly compensated after consideration of possible zoning changes.  The Supreme Court in Borough of Saddle River v. 66 East Allendale, LLC required a pre-trial hearing to follow a two-step approach to determine the fair market value of the property:

  1. Whether there is sufficient evidence to support a conclusion that a zoning change is reasonable.
  2. Whether a buyer and seller engaged in voluntary negotiations would reasonably believe that a change in zoning may occur and will ultimately impact the value of the property.

Ultimately, the court in New Jersey Transit Corporation v. Mori reasoned that this two-step approach was not used in the property valuation, and therefore remanded the decision to further determine whether there was a reasonable probability that a Section 404 permit would have, in fact, been granted.

If you have questions, contact Sue Gieser at scg@lawwmm.com, (201) 319-5750.

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3 WMM Senior Partners Publish – NJ Environmental Law Handbook

Posted on Tuesday, April 29, 2014 by Steven R. Gray , Daniel E. Horgan , Thomas J. O'Connor

In recognition of their expertise in handling diverse environmental cases relating to development in the NJ Meadowlands, Steve Gray, Dan Horgan and Tom O’Connor were honored as contributing authors in the 2014 Edition of the NJ Environmental Law Handbook. While the firm’s environmental practice encompasses all aspects of litigation and regulatory matters including insurance and toxic tort claims, Steve Gray and Tom O’Connor chose to write in Chapter 5 (Section 7) of the Handbook which deals with the subject of saving valuable time in advancing a development project by coordinating the interests of the many agencies which regulate development in the NJ Meadowlands. The chapter is a primer on how these sometimes competing interests can be harmonized.  Read Entire Article

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Governor Signs Legislation Authorizing Extension of Mandatory Deadline for Submitting to DEP Remedial Investigation Reports—3/7/14 Application Required

Posted on Thursday, January 23, 2014 by Susan C. Gieser , Steven R. Gray

On January 21st, the Governor signed Assembly Bill No. 4543 into law (“Act”), authorizing an extension of the mandated May 7, 2014 deadline for the completion of pending environmental “remedial investigations” until May 7, 2016. As reported in our previous firm blog postings, the Site Remediation Reform Act (“SRRA”), N.J.S.A. 58:10C-1 et seq, established a May 7, 2014 deadline for completing the remedial investigation for all sites that triggered remediation requirements prior to May 7, 1999. The Act sets forth the eligibility criteria for an extension, among the most controversial being the requirement to establish a remedial trust fund ( i.e. cash or equivalent) in the amount of the cost to complete the required soil/groundwater investigations (unless the responsible party has already posted security for the cleanup). Read Entire Article

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Bill Extending Deadline for Filing Remedial Investigation Passes

Posted on Thursday, January 16, 2014 by Susan C. Gieser , Steven R. Gray

On Monday January 13, 2014, both Houses of the Legislature approved Assembly Bill No. 4543 (i.e. the Assembly version of Senate Bill 1035) authorizing an extension of the time for completion of a Remedial Investigation for certain contaminated sites prior to DEP undertaking direct oversight. If signed by the Governor, the bill would allow a 2-year extension of the mandated May 7, 2014 deadline for the completion of pending environmental “remedial investigations.” Given the bipartisan support for the legislation, the Governor’s approval is likely. The Governor has until January 21, 2014 to sign the Bill into law. (If the Governor takes no action it will be considered a “pocket veto” and the bill would need to be re-introduced in the new Legislative Session.) Read Entire Article

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Proposed Extension to the May 7, 2014 Statutory Deadline to Complete a Remedial Investigation

Posted on Friday, January 10, 2014 by Susan C. Gieser

The Site Remediation Reform Act (“SRRA”), N.J.S.A. 58:10C-1 et seq, established a May 7, 2014 deadline for completing the remedial investigation for all sites that triggered remediation requirements prior to May 7, 1999. See, N.J.S.A. 58:10C-27a(3). SRRA further provides that if a responsible party fails to do so, the NJDEP is required to undertake direct oversight of the remediation of the contaminated site.  Read Entire Article

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Renewable Energy Initiatives

Posted on Monday, August 12, 2013 by David A. McPherson , James M. Spanarkel

Although fewer in number than in the previous two years, there are still a substantial number of solar energy incentives available to prospective owners/purchasers of solar energy systems, both on the federal and state levels. Read Entire Article

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Discretion of a NJ Licensed Site Remediation Professional (LSRP): A Blessing or a Curse?

Posted on Friday, June 28, 2013 by Steven R. Gray

There are many competent and knowledgeable LSRPs who can assist with completing an investigation and clean-up of a contaminated property – but often the timing of the LSRP’s certification that progress has been made, is critical to a proposed project or sale of a property. In these instances, strategy is involved, and an environmental lawyer should be consulted early in the process.  Read Entire Article

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Court Reaffirms that Regulated Businesses Subject to Unannounced DEP Inspections

Posted on Monday, June 3, 2013 by Susan C. Gieser

The NJ Supreme Court recently reaffirmed NJDEP’s right to conduct unannounced inspections of commercial property owned by businesses in highly regulated industries – and in certain limited circumstances, residential property.  Read Entire Article

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Redevelopment of NJ Brownfields Sites Tip re: Licensed site remediation professional (LSRP) as a deal maker rather than a deal breaker

Posted on Wednesday, March 13, 2013 by Steven R. Gray

If you are representing the Seller, have you thought about requiring your prospective purchaser to complete diligence without retaining an LSRP so that if transaction is not consummated, your client isn’t burdened with an obligation to investigate/remediate contamination identified during due diligence. Read Entire Article

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