Environmental Law and Real Estate: What You Need to Know

Environmental Law and Real Estate:
What You Need to Know and How Can You Prepare Yourself?

As real estate counsel, you know that property acquisitions have far-reaching implications for parties on both sides of the table. This is especially true in New Jersey with its long industrial and commercial history and labyrinth of special environmental issues. In fact, especially in New Jersey, real estate or business transactions can trigger specific (often long-term) environmental obligations that call for strategic planning during the contract negotiations. Having a team that knows how to navigate those issues through completion can mean the difference between happy clients, clarity and closing; or confusion, wasted time and effort, and unanticipated liabilities and risk.

Careful planning and frank discussions help clients quickly evaluate prospective business deals, determine if the property is the right fit, and if so, keep their transactions on track.

Planning:
Fundamental Tenets of Environmental Legal Liability Arising from Real Estate
Should be Considered Before Contracting

Under certain New Jersey and federal laws, persons who own or acquire contaminated land are strictly liable, without regard to fault, for the costs of investigating and remediating the contamination. Many landowners find themselves responsible for the costs of investigating and remediating contamination that they did not cause or contribute to, and in some instances, didn’t even know existed on the property when they acquired it. Strict liability for environmental contamination can extend to all areas (e.g., land, groundwater, indoor air, surface water) where contamination exists, including all properties where the contamination may have migrated. As you can imagine, environmental pollutants often do not stay confined to property boundaries. Disputes about the source, origination, and migration of contamination can tie up properties and keep property owners in disputes for decades, carrying enormous costs and liability.

There are a few defenses to environmental liability for property owners or operators related to environmental contamination at or emanating from their property. However, the defenses that do exist are limited, and in many circumstances, do not fully absolve the property owner or operator, but only limit their liability. For example, one defense to liability under the New Jersey Spill Compensation and Control is referred to as the “Innocent Purchaser” defense. However, even “innocent purchasers” are required to take certain actions to investigate and remediate contamination, and if environmental due diligence is not performed before closing, the purchaser may be ineligible even for this limited defense. Therefore, planning before contracting is crucial for parties to understand the scope of requisite environmental due diligence.

Act Quickly, Get to Know the Site and the Client

Time is key for all transactions. Environmental inquiries can help clients quickly assess if a property with environmental risk is worth further investigation, or if the property is undesirable to them. For instance, comparing certain aspects of the site history with the client’s projected end use may facilitate a quick evaluation of whether the subject of a projected transaction is actually the right property for that client. Thus, contractual planning and due diligence may be tailored around certain initial inquiries and environmental facts.

Navigating the Quagmire:
A “Complete” Environmental Remediation Does Not Guarantee
That No Further Obligations Exist

In New Jersey “done” doesn’t always mean “done” regarding environmental remediation. For environmentally impacted sites (e.g., brownfields, contaminated sites, or properties undergoing remediation) the cleanup can be considered administratively and technically “complete” in New Jersey even when future environmental requirements and reporting continue to exist for the property owner. For example, depending on how the cleanup was conducted and what environmental “remedies” were used, a property can be subject to environmental covenants, conditions, or restrictions that continue in perpetuity. Some may even have ongoing “active” requirements and continued remedial obligations that use environmental engineering controls under “remedial action permits” issued by the State. In those circumstances, continued operation and reporting to the State regulator could be required in perpetuity, or until and unless the contamination is more completely removed. Anyone who buys land with such restrictions or ongoing obligations may become liable for compliance with those restrictions or obligations.

We provide legal counseling during contaminated property cleanup from before the beginning to end. With our experience, the overlapping and complex environmental regulatory structure, compliance obligations, and common law pitfalls can be navigated. We frequently work with real estate counsel and clients to address and plan for potential environmental issues during contracting or pre-closing negotiations to help facilitate the parties’ goals, responsibilities, and obligations before and after closing.

Certain properties, operations and site histories have more environmental risk than others. It is important for the client to know and consider the specific site history to achieve their goals. Having open and frank discussions with clients about what, if any, environmental risk they may be willing to take on is an important initial consideration that could influence many aspects of a transaction, from contracting to due diligence, to post-closing obligations and liabilities. Proper planning can help to avoid known and unknow assumptions of risk and liability.