A recent New Jersey Appellate Division case clarifies the process of valuing contaminated property in a condemnation action, and finds that where the cleanup has been completed, even if contamination remains at the property, the property owner is not required to escrow additional monies for any further cleanup.

In 2003, in the Suydam Investors case, the New Jersey Supreme Court set forth the process for valuing contaminated property in a condemnation matter: the property is valued as if the contamination has been remediated, with a portion of the condemnation award necessary to fund the cleanup being escrowed.  This rule avoids a “double-take,” in which the condemning authority pays less for a property because it is dirty, but then gets the property cleaned-up by forcing the former owner to pay for the cleanup.

In Borough of Paulsboro v. Essex Chemical Corp., decided July 16, 2012, the Appellate Division was asked to decide whether the Suydam methodology applied where the NJDEP approved the cleanup and capping of a landfill.  Paulsboro was condemning a 67 acre property owned by Essex Chemical.  Located on the property was a seventeen acre landfill which was capped with a 40-foot high mound of gypsum.  The landfill closure was approved by the NJDEP, and the only remaining obligations were maintenance and monitoring requirements associated with the cap.  Those obligations were assumed by BP, which leased the landfill for a solar power facility.

Paulsboro argued that under Suydam, the entire condemnation award should have been put into escrow to pay for the removal of the landfill.  Essentially, they argued that property with a closed landfill was not the same as a “clean” property, and therefore they should be able to use the condemnation award to pay for the landfill’s removal.  The Appellate Division, however, held that the critical issue was whether Essex Chemical had any further liability for cleaning up the landfill.  If Essex Chemical did have further cleanup liability, then Suydam would apply to avoid the “double-take” problem.  In this case, however, because the NJDEP approved the landfill closure and Essex Chemical had no further cleanup liability, the Suydam formula did not apply.  Therefore, the fair market value paid by Paulsboro was immediately available to Essex Chemical and did not need to remain in an escrow account to pay further cleanup costs.

While the presence of a landfill on the condemned property is potentially a more significant concern, the reasoning of the case should apply to more typical cleanup cases where a property might have a conditional No Further Action letter from the NJDEP or a conditional Response Action Outcome letter from a Licensed Site Remediation Professional.  In the typical conditional closure, contamination remains on-site but is subject to the implementation of institutional or engineering controls such as a deed notice or an asphalt cap over the contaminated soils.  With such a conditional closure, the property owner generally faces no additional remediation liability for the property.  If that property is then condemned, Suydam would not apply and the condemnor would need to pay the property owner the full fair-market value of the property with no monies set aside for further cleanup at the property.

Article originally published in New Jersey Law Journal.

In an effort to expedite the remediation of more than 20,000 contaminated sites, New Jersey passed the Site Remediation and Reform Act (SRRA) on May 7, 2009. SRRA transferred the responsibility of overseeing most cleanups in the state from the New Jersey Department of Environmental Protection (NJDEP) to licensed private environmental consultants called Licensed Site Remediation Professionals (LSRPs). LSRPs now perform the environmental cleanups and have the authority to stand in NJDEP’s shoes and sign off on the cases they oversee. Among many other changes, SRRA enhanced the affirmative obligation of responsible parties to timely remediate contaminated sites.

The LSRP program became fully effective on May 7, at which time all existing NJDEP matters should have been transitioned into the new program. Although that critical date has now passed, SRRA will influence nearly every real estate transaction going forward. Real estate attorneys must be aware of SRRA’s implications on their practice and on their clients’ obligations with respect to their properties.

Please click here to view the entire article.

Reprinted with permission from the June 4, 2012 edition of New Jersey Law Journal. © 2012 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited.

Over the next three to four weeks, the NJDEP will be sending letters to the responsible parties for all contaminated properties in New Jersey (other than residential properties) providing the NJDEP’s proposed ranking for each site.  Responsible parties will have only about 60 days to “challenge” those rankings.

The Site Remediation Reform Act, passed in 2009, not only established the LSRP program, but also requires the NJDEP to establish a “Priority Ranking System” to classify/categorize all contaminated properties in the state.  Specifically, the Act requires the NJDEP to create “a ranking system that establishes categories in which to rank sites based upon the level of risk to the public health, safety, or the environment, the length of time the site has been undergoing remediation, the economic impact of the contaminated site on the municipality and on surrounding property, and any other factors deemed relevant by the department.”  Site rankings are expected to become public in September 2012.

Contaminated sites will be ranked between 1 and 5, with category 5 reserved for sites presenting the highest risk to public health, safety or the environment, or the sites undergoing remediation for the longest time.  Category 1 will be for the sites with the least risk.  The NJDEP has not yet included economic impact or other factors in their ranking system, despite the Act’s mandate that those factors be included in the ranking process.

The rankings have been established using computer modeling, based upon electronic data submitted for contaminated sites as well as the NJDEP’s existing GIS computer data.  The NJDEP’s model considers data inputs such as the proximity of a site to sensitive receptors (e.g., schools, residential properties, wetlands, etc.), the contaminants of concern at the property, the toxicity of those contaminants, and the affected media (soil, groundwater, surface water or vapor intrusion).  The model then generates a score for a property, and that score in turn determines the overall site ranking.

The letters to be sent out by the NJDEP over the next several weeks are expected to allow responsible parties approximately 60 days to challenge the NJDEP’s ranking.  Those challenges will likely be limited to claims that the NJDEP used incorrect, outdated or incomplete data in determining a site’s rank.  The NJDEP has stated that this challenge period will not be extended for any site.  After considering challenges, the NJDEP is expected to issue its final site rankings in September 2012.  Those rankings will be updated periodically by the NJDEP based upon new data received from on-going cleanup cases.

This is a brand new NJDEP program, and it is not known how the NJDEP will ultimately use the rankings or how the public will use them.  With such uncertainty over the potential use of the rankings, a responsible party should minimally make sure that its site ranking is “accurate” under the NJDEP’s model.

With such a short window to present the NJDEP with any challenges to a site’s rank, it is critical that responsible parties discuss this issue with their attorneys and environmental consultants as soon as they receive their letter from the NJDEP.

This article is a follow-up to our prior post of July 31, 2009 dealing with this issue.  As you may know, the New Jersey Department of Environmental Protection (“NJDEP”) enacted a notification and public outreach rule, N.J.A.C. 7:26E-1.4 et seq., in September of 2008.  The regulation requires responsible parties who are conducting an environmental investigation or remediation at contaminated sites to provide various public notifications and outreach activities.  In general, the notification letters contain the name of the responsible party, address, tax block and lot, NJDEP ID number, brief description of the type of contaminant and actions being taken, contact information and a statement indicating the municipality may request that the person conducting the remediation provide copies of all environmental reports.  The regulation provided that most of these notifications had to be completed prior to September 2, 2009. 

As the cases have progressed and the new Licensed Site Remediation Professional Program has been implemented, responsible parties may have been distracted from the details of this public notification rule.  Specifically, the public notification and outreach requirements are continual.  If a responsible party chose to comply with its public notification requirements by sending letters to owners and operators of property within 200 feet of the site boundary instead of posting a sign, updated notification letters detailing the current condition and progress of their remediation must be sent every 2 years until all the required remediation is completed and the final remediation document is filed or issued (No Further Action Letter or Response Action Outcome).  Therefore, if you sent out public notification letters prior to the former September 2, 2009 deadline and your cleanup is not yet complete, you must issue updated public notification letters prior to September 2, 2011.  Two years ago, we were skeptical as to the reaction the public would have to these notification letters, but for the most part, the reaction has not been significant or problematic.

On July 16, 2010, the New Jersey Department of Environmental Protection (“NJDEP”) Commissioner, Bob Martin, published a List of Policy Priorities and a Vision Statement (see links below) in written form that will serve as a guide for the NJDEP to be more efficient and consumer friendly. The goals of these two documents are to define the strategic vision of the NJDEP for the next four years and to provide the foundation for structural changes that will make the NJDEP an effective organization in the future. For persons who are involved in the investigation or remediation of contaminated sites in New Jersey, they are familiar with the NJDEP’s administrative processes, which sometimes can be unacceptably long. With the implementation of New Jersey’s License Site Remediation Professional (“LSRP”) program, which we have detailed in prior posts, NJDEP attempted to expedite the site remediation regulatory process. As the LSRP Program is extremely new, NJDEP seems to be auditing a high percentage of the cases within this program. However, the 2010 Vision Statement and Priorities List spans the entire NJDEP, not just the Site Remediation Program. Although Commissioner Martin acknowledged NJDEP’s core mission of protecting the environment, he emphasized the importance to be much more effective and institute a balanced implementation and enforcement of environmental laws and regulations. Commissioner Martin commented on the importance of understanding and appreciating the impact NJDEP’s actions have on economic growth and environmental protection in New Jersey. Commissioner Martin stated that “protecting the environment should drive economic growth, not impede it.” In addition, he suggested the introduction of a “new culture” within NJDEP, with customer service, flexibility and effective use of performance metrics as key components. The Vision Statement recognizes NJDEP staff as its most important asset, while simultaneously requiring them to change how they perform their functions.

NJDEP staff have been instructed to base its decisions on science, facts and data with a focus on cost/benefit analyses. NJDEP will be utilizing new technologies to streamline operations and improve service. The communication between NJDEP and the regulated community must be constant and transparent, so that decisions are fully and clearly understood. To bolster the commissioner’s claims that NJDEP will work more closely and effectively with the regulated community, on August 17, 2010, NJDEP established a process to allow LSRPs and remediating parties to meet with experienced NJDEP staff to ask site specific technical questions. This service is being offered for new cases (initiated after November 4, 2009) that have opted into the LSRP Program. The technical consultation sessions will be held in face to face meetings to discuss technical issues related to a remediation of a site. This new service is part of NJDEP’s “compliance assistance” approach and will allow LSRPs and remediating parties to move forward with confidence. Although the Commissioner’s efforts to reform the NJDEP are commendable, time will tell whether NJDEP will recognize the real world impacts its decisions have on the regulated community and whether NJDEP will truly modify its behavior.

Click on the below links to view the List of Priorities and the Vision Statement.
http://www.nj.gov/dep/commissioner/vision.pdf and http://www.nj.gov/dep/commissioner/priorities.pdf