VOL. CLXXXIII – NO.
13 – INDEX 1141
REAL ESTATE & TITLE INSURANCE
No Further Action Letter Could Be Unreliable
Buyer may face future liability for environmental cleanup costs
By Mitchell H. Kizner and
Donna T. Urban
urchasers of properties subjected
P to a discharge of hazardous sub-
stances too often proceed with the
mistaken belief that they will be pro-
tected from future liability for cleanup
costs as long as the seller has, or will
receive, a “No Further Action Letter”
(NFA) from the New Jersey Department
of Environmental Protection. The reali-
ty, however, is that the issuance of a No
Further Action Letter does not mean
that environmental obligations concern-
ing a discharge have been satisfied with
finality. Recent revisions by the NJDEP
to its groundwater quality standards and
an upcoming adoption of its soil reme-
diation standards underscore the fact
that in various circumstances, the
issuance of an NFA will not protect a
buyer from being called upon in the
future, at substantial expense, to per-
form tasks concerning prior releases
into the environment which it had no
role in creating. There are large risks if
the buyer of a property regards an NFA
as the end of the inquiry into obligations
concerning the environmental condition
of a site.
Purchasers that buy sites requiring
further environmental assessment,
Kizner and Urban, shareholders at
Flaster/Greenberg of Cherry Hill, are
members of the firm’s environmental law
practice group.
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.
MARCH 27, 2006
remediation or maintenance can be
compelled by governmental authorities
to perform those tasks even if they had
nothing to do with the contamination.
Under the New Jersey Spill
Compensation and Control Act, pur-
chasers of contaminated properties can
be held liable for the cost of cleaning up
spills that occurred prior to their owner-
ship, unless they follow certain pre-
scribed due diligence requirements.
While special protection is afforded
to buyers of property purchased after
January 6, 1998 (the effective date of
the Brownfield and Contaminated Site
Remediation Act), in reliance upon the
prior issuance of a No Further Action
Letter for the site, even this protection is
limited. N.J.S.A. 58:10-23.11gd(2)(e)
and 58:23.11gf. For instance, there is no
liability protection to a buyer who relies
solely upon a previously issued NFA for
discharges that occur between the
issuance of the NFA and the purchase of
the property. N.J.S.A. 58:10-
23.11gd(2)(e). A buyer is likewise not
absolved of liability for discharges that
migrate offsite of the property covered
by the NFA, or for failure to maintain
institutional or engineering controls on
the property, or otherwise comply with
the conditions of the NFA. Id. And of
course, apart from legal liability for
cleanup costs, the existence of unex-
pected, continued environmental
impairments concerning a property will
reduce the value of a buyer’s investment
in that property.
ESTABLISHED 1878
Furthermore, the NJDEP issues
NFAs based upon information available
to it at the time. The Department can
rescind or modify the NFA to require
additional remediation in various cir-
cumstances such as where: (1) it adopts
an amendment to a remediation stan-
dard that decreases the standard by an
order of magnitude after the issuance of
a NFA; (2) a discharge that occurred
prior to the issuance of a NFA is discov-
ered after the issuance of the NFA; (3) a
contaminant exposure pathway from a
discharge that predates the NFA is iden-
tified after the NFA is issued; (4) the
person who acquires the property fails
to comply with the conditions of the
NFA; or (5) the approved remediation is
no longer protective of public health,
safety and the environment. N.J.A.C.
7:26C-2.6(d). Moreover, the NJDEP
can rescind an NFA if it later discovers
that information was withheld from the
DEP prior to its issuance.
It must also be recognized that not
all NFAs are alike. Some NFAs are
issued without conditions or restrictions
while some are conditioned upon fur-
ther specific requirements. And
although an unconditional NFA pro-
vides strong protection against future
environmental 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 an
order of magnitude. The provision for
reopening of NFAs in the face of
strengthened environmental standards is
not merely academic — in November
2 NEW JERSEY LAW JOURNAL, MARCH 27, 2006
2005, the NJDEP adopted new ground-
water quality standards that increased
by an order of magnitude or more
action levels for various contaminants
in groundwater. N.J.A.C. 7:9C. Also,
the NJDEP has announced proposed
new soil remediation standards, which,
if promulgated, would decrease the
concentrations allowable for a wide
range of chemical constituents by more
than an order of magnitude. These
include, but are not limited to, ethyl-
benzene, toluene, naphthalene, 1,1,2,2-
Tetrachloroethane and 1,1,2-
Trichloroethane. It remains to be seen
whether and to what extent the NJDEP
will revisit cases “closed” with NFAs to
require compliance with the new stan-
dards, but it would not be surprising if,
at a minimum, previously issued NFAs
would be re-examined in such pending
cases as those involving purchases sub-
ject to the Industrial Site Recovery Act
(ISRA), or where an NFA has been
issued for a limited area of concern, but
not yet for the entire site.
Conditional NFAs provide even
less protection to a buyer. An NFA may
be conditioned upon a variety of events,
perhaps the most common being that
which accompanies a “classification
exception area” (CEA) for groundwa-
ter. N.J.A.C. 7:26E-8.3. The NJDEP
will allow a classification exception
area — groundwater pollution in a
localized area in excess of cleanup stan-
dards that is allowed to remain for a
temporary period — when the NJDEP
is convinced that it is likely that the
applicable groundwater standard will be
met though natural attenuation of the
contaminants within a predetermined
period of time.
The risk in purchasing a property
covered with a CEA is that in many
instances, the groundwater will not
clean up as expected and the NJDEP
will wind up terminating the CEA and
revoking the conditional NFA that
accompanied it. In that instance, the
responsible party, which may now con-
sist only of the new owner if the former
owner is no longer available, may be
required to utilize costly active remedi-
ation techniques such as pump and treat
or oxygen release compounds to
address the contamination.
Furthermore, while the NJDEP previ-
ously had been content to allow respon-
sible parties to demonstrate at the end
of the duration period set forth in the
CEA that the groundwater cleaned up as
expected, it is now often requiring that
periodic testing be undertaken after the
issuance of the NFA to make sure that a
gradual reduction in contamination lev-
els is being achieved. See N.J.A.C.
7:26E-8.4.
NFAs can also be conditioned upon
There are large risks if the
buyer of a property regards
an NFA as the end of the
inquiry into obligations con-
cerning the environmental
condition of a site.
the maintenance of institutional or engi-
neering controls, which are embodied in
deed restrictions. Institutional controls
primarily involve restricting a property
to nonresidential use so that more
lenient soil cleanup standards can be
used for a site. Engineering controls
often consist of the capping of contami-
nated soil to protect the public from
exposure and prevent further migration
into the groundwater, or the placing of
fencing around such soil to prevent
human contact.
Buyers purchasing property subject
to these controls must be advised
beforehand that the NJDEP requires the
responsible party to submit biennial
certifications, which often require the
183 N.J.L.J. 1141
input of qualified professionals, con-
firming that the controls in question are
effective. If, for example, the control is
not serving its purpose or if repairs need
to be made in asphalt caps, the NJDEP
will require further work to be under-
taken. If the seller or other responsible
party is no longer present or financially
able to bear these costs, the expense of
doing so will fall upon the new owner.
The imposition of institutional or
engineering controls may have other
negative financial repercussions on a
new owner. While efforts can be made
at a later time to gain NJDEP approval
to modify a control, the existence of
capping, fencing, or inability to use the
property for residential use can obvi-
ously affect future development plans
for the site. Secondly, the existence of
such controls will appear prominently
in a title report and make it more diffi-
cult to later sell or obtain financing for
the property. Indeed, it is likely that any
site bearing such a restriction will to
some extent suffer a diminution in
value due to the continuing existence of
the control.
In conclusion, given the potential
lack of finality of NFAs, a purchaser of
a contaminated site in New Jersey can-
not rely solely upon NFA for protection
against liability for future, often costly,
remediation obligations. A buyer’s
attorney should determine whether fur-
ther cleanup costs may be lurking
behind previously issued NFA and con-
sider whether the real estate contract or
other form of protection should provide
a mechanism to deal with the payment
of those expenses. Similarly, the char-
acteristics of those NFAs to be sought
in the future should be agreed to in
advance and set forth in the contract
along with provisions allocating liabili-
ty and securing payment for future
environmental expenditures. The bot-
tom line is that purchasers should not
proceed with transactions expecting
that they will have no remediation
obligations for old spills that they did
not cause, and then learn after the sale
that they may face significant expendi-
tures for those discharges. ■