The Spill Act’s Role in Property Sales and Ownership
If you own property in New Jersey that may be undergoing or in need of environmental remediation or are involved in a real estate transaction, understanding the New Jersey Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et seq. (the “Spill Act”) and interrelated environmental statutes including the New Jersey Brownfield and Contaminated Site Remediation of Sites Act, N.J.S.A. 58:10B-1 (“BCSRA”), and the New Jersey Site Remediation Reform Act, N.J.S.A. 58:10C-1 et seq. (“SRRA”) is essential.
What is the Spill Act?
The Spill Act was enacted in 1976 to address concerns over the prevalence of hazardous waste sites in New Jersey, identify the risks these sites pose to human health and the environment, and to safeguard an adequate source of funding to cover the associated costs of remediating those sites.
The Spill Act prohibits the discharge of hazardous substances except in compliance with a permit and imposes requirements on closed and abandoned hazardous waste sites. The Act provides for the cleanup of hazardous substances and establishes a trust fund to cover the costs of cleanup when no responsible party can be identified or where the responsible party is unwilling or unable to pay for the cleanup. The Act imposes strict liability upon “[a]ny person who has discharged a hazardous substance or is in any way responsible” for the release of hazardous substances. The phrase “in any way responsible” has been interpreted broadly by New Jersey Courts to include any person who may have had control over a hazardous substance at the time of a discharge.
How Does it Affect Businesses and Homeowners?
The Spill Act is an important piece of legislation that has implications for property owners and businesses throughout New Jersey. Here are just a few of those considerations:
Liability and Legal Responsibility Under the Spill Act
One of the Spill Act’s primary mechanisms is to impose liability for remediation or costs of remediation incurred by the State on those parties that may be potentially responsible for contamination at a site. These may include former or current owners or operators of a property at a time when a discharge occurred, current owners at a time when a discharge was first identified, or persons who caused a discharge of hazardous substances at a site without an ownership stake in a property. Responsible parties may be held strictly liable for the entire cost of cleanup and for damages including the costs and damages for contamination that spreads or migrates on to neighboring properties. Strict liability means that a party can be held responsible regardless of fault, meaning, for example, mere ownership of a property where a discharge has been identified, even if the current owner played no part in the use, storage, or disposal of a hazardous substance, may make the current owner responsible for the entire cost of the cleanup. Where multiple potentially responsible parties are involved, the parties may become embroiled in litigation over which party or parties should pay for the cleanup costs and damages, or their share of those cleanup costs and damages, and it could (and often does) take years before there is any resolution. It is important that property owners take appropriate precautions when selling or purchasing property. Failure to disclose known contamination when selling property, or a failure to identify contamination when purchasing, could result in serious legal consequences and financial liabilities for parties involved in a transaction involving contaminated property.
Environmental Due Diligence in New Jersey
Because both current and former property owners are among those who may be held responsible for the cleanup of contamination at a site, real estate transactions must be approached with utmost diligence. Both the buyer and seller should ensure they have done their due diligence by following applicable regulations including conducting preliminary assessments, site investigations, and phase I and II environmental site assessments utilizing reputable environmental consultants so that potential concerns can be identified, and to ensure compliance with New Jersey and federal requirements.
Defenses to Spill Act Liability
While property owners and other potentially responsible parties may be held liable regardless of fault for contamination at a property, there are some limited defenses to Spill Act liability including, without limitation, that the contamination was solely caused by acts of God, acts of war, and acts of sabotage. The Spill Act also contains an innocent landowner defense which may apply to purchasers who acquire property without knowledge of contamination and who have no reason to know about the contamination. To qualify for the Spill Act innocent landowner defense, the buyer must, without limitation, have performed a compliant Preliminary Assessment and possibly a site investigation which will generally satisfy the regulatory requirement that the buyer undertook “all appropriate inquiry” into the environmental condition of the property prior to purchase (N.J.S.A. 58:10-23.11g(d)(2)(d)).
A Preliminary Assessment and possibly a Site Investigation must be conducted in accordance with regulations adopted by the New Jersey Department of Environmental Protection (“NJDEP”), the Technical Requirements for Site Remediation, N.J.A.C. 7:26E, to satisfy the requirements of the Spill Act “innocent purchaser” defense to liability.
Under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA), the federal analog to the Spill Act, conducting a Phase I (and possibly a Phase II) environmental assessment satisfies a buyer’s “all appropriate inquiries” requirement for a limitation to liability under CERCLA, but does not satisfy New Jersey’s requirements to qualify for the innocent landowner defense under the Spill Act. As mentioned, in New Jersey, “appropriate inquiry” under the Spill Act is defined as “the performance of a Preliminary Assessment, and a Site Investigation if the preliminary assessment indicates that a site investigation is necessary”, and while a Phase I and Phase II may be similar to a Preliminary Assessment and Site Investigation, they are not the same thing.
An experienced lawyer is important to help you navigate potential statutory defenses to environmental liabilities.
Financial Burden
The cost of investigating and remediating a contaminated site can reach hundreds of thousands, even millions of dollars. For that reason, the Spill Act authorizes recovery of certain environmental costs from the parties responsible. If you are found liable, you could be looking at significant financial strain or bankruptcy. Nevertheless, an ounce of prevention is worth a pound of cure. An understanding of the sweeping provisions of the Spill Act, CERCLA, and the potential pitfalls in selling or acquiring contaminated property, as well as undertaking faithful compliance with due diligence requirements during property transactions, can help address potential risks and avert liabilities associated with ownership, and thereby potentially help a party avoid serious legal and financial difficulties down the line. Working with a team of competent and experienced professionals can help.
Working with the Right Experts for Better Results
The Spill Act, BCSRA, SRRA, and CERCLA are complex environmental statutes that include detailed regulatory requirements, and which have all been subject to various amendments over time. Statutory and regulatory provisions have been challenged and interpreted by courts many times, and sometimes different courts reach different results with confusing rationales. Considering the potentially significant liability, if you are or have been associated with a potentially contaminated property — or if you’re involved in real estate transactions and want to reduce the risk of issues down the line — relying on lawyers with the knowledge and legal expertise is requisite
The lawyers at Davis Environmental Law have extensive experience and knowledge of environmental issues in New Jersey. If you need an experienced team that you can trust to help navigate these issues and help you address your concerns, please do not hesitate to contact us.