Sales of Contaminated Property — When is an Environmental Cleanup not a Cleanup?

commercial-real-estateEnvironmental discharges on commercial property are often discovered or confirmed during the process leading to the potential sale of that property. However, the discovery of that contamination does not have to bankrupt the seller or cause the sale to fall through. In New Jersey, contaminated soil that has been cleaned to less stringent non-residential, or “restricted use,” standards may remain in place on commercial properties as long as the public is protected from exposure to that material. In fact, even contaminated soil that exceeds non-residential standards may be allowed to remain in certain situations. Typically, capping the site with concrete, asphalt or a building footprint is all that is required to protect the public from exposure to the contamination. A cleanup is not really a cleanup.

If contaminated material above residential standards is left on a site, aside from the usual requirement that it be capped, a “deed notice” must also be placed on the property to disclose that the contamination exists and that certain uses of the property are prohibited unless the contamination is further cleaned up to residential, also known as “unrestricted use,” standards. There would also be a continuing inspection and reporting obligation, often an escrow or other financial assurance must be established to provide security that funds are available to maintain the cap or other protective mechanism, and payment of a small annual fee to the New Jersey Department of Environmental Protection is required. For properties whose location, zoning or other characteristics make residential usage unlikely or unappealing anyway, these requirements are usually not so onerous that they should prevent a sale of the property. In fact, the purchase of property subject to these requirements can present financial opportunities for buyers as the property may cost less than what it would sell for if cleaned to a more stringent standard.

Nevertheless, sometimes a future owner does wish to use the property for residential purposes or other purposes that require contamination to be cleaned to more stringent standards, like a school. In such instances, anyone wanting to change the property’s use to residential would need to hire a Licensed Site Remediation Professional to oversee a further cleanup of the site by removing or remediating the contaminated soil to residential, or “unrestricted use,” standards. In the case of schools, there may be further cleanup requirements, known as “presumptive remedies,” that must also be followed. These obligations would ordinarily be those of the new owner who is seeking to change the use.

However, in order to avoid any misunderstandings and protect a seller from possible future claims, any contract for sale of a property with a deed notice should specifically state that any new remediation obligation caused by a change in use will be borne by the buyer and that the buyer will release the seller from liability. The seller might also consider placing such language in the deed transferring the property so that these conditions would become known to and arguably binding upon successor owners who take title after the original buyer transfers the property – also known as “running with the land.” Thinking about these issues in advance often helps to avoid conflicts later.

Questions? Let Mitchell know.

Mitchell Kizner of Flaster Greenberg

Mitchell Kizner is a New Jersey focused attorney in Flaster Greenberg PC’s Litigation and Environmental Law departments. He represents clients in insurance, environmental, construction and other commercial matters as part of his active litigation and commercial law practice. He is also General Counsel to the firm. He can be reached at mitchell.kizner@flastergreenberg.com or 856.382.2247.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s