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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.