NJ Seller Responsible for Costly Enviro Closure Under Contract of Sale
A recent unpublished New Jersey Appellate decision highlights the inadvisability of open-ended agreements to obtain final remediation documents in connection with a sale of New Jersey property. In 89 Water Street Associates LLC v. John H. Reilly III et al., the appellate panel concluded that the owner of an industrial property is still obligated under a 2004 sales contract to obtain environmental closures for the site, in spite of greatly increased costs under a new legislative scheme enacted in 2009.
The subject contract of sale was entered into in October 2004, and imposed an obligation to obtain from the NJDEP confirmation that the industrial property was properly remediated under existing or future environmental laws or regulations. In 2004, the final remediation document (FRD) would have been issued pursuant to NJ's Industrial Site Remediation Act (ISRA). From 2005 through 2010, neither party took any action to terminate their agreement or demand that closing occur. In 2009, New Jersey enacted the Site Remediation Reform Act (SRRA), which established the Licensed Site Remediation Professional (LSRP) program and changed the process of how sites are remediated. The defendant sellers sought to cancel the contract in 2012, without having obtained an FRD. In March 2015, 89 Water Street Associates filed its suit seeking declaratory judgment that the contract of sale had not terminated and that it was not obligated to close until defendants obtained the environmental closure.
The Appellate panel concluded that even though the cost of obtaining an RAO, the closure document under SRRA, was not contemplated by the parties, and the cost to do so exceeded the contract purchase price (due in part to the new LSRP process), the defendant sellers were not relieved of their contractual duties. Importantly, the contract did not contain a time of the essence clause or language stating that failure to close by a date certain would be grounds to cancel or terminate the agreement. Moreover, the contract did not impose any time limit for defendants to secure required documents nor did it place a cap on the amount of costs the seller would have to incur in order to secure the clearances from the NJDEP.
This case should serve as a cautionary reminder of the complicated and costly issues that can arise in transactions involving industrial and/or contaminated property and how these can vary from state to state. If you encounter environmental issues in connection with real property transactions or need assistance drafting environmental provisions in purchase and sale agreements, it is always prudent to contact an environmental attorney familiar with the nuances of the state in which the property is located.