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It is not illegal to sell a contaminated property, but it sure can be difficult.   The primary difficulty is contamination which devalues real estate and who is responsible for the cleanup. 

 

Determining a cost to clean up the property has to be part of the valuation of the property for purchase. Let's say for argument's sake you have a $1,000,000 property, with $200,000 in anticipated cleanup costs.   I will not bother dealing with what you pay for this property, but it is common that not only the $200,000 is deducted from the sale price but an additional amount is deducted for the headache and management of this future cleanup if cleanup is transferred to the new owner.   In this scenario, buyers take the risk that the $200,000 is fixed, which is not always the case as costs rise and regulations charge (becoming more stringent)., which also increases cost.

That is a very simple scenario of selling or buying a contaminated property. Unfortunately, environmental regulations add another layer of complexity.   If you own a contaminated property, you are the Responsible Party (RP) and Person Responsible for Conducting Remediation (PRCR). 

Clearly, you should discuss this type of sale with your attorney, with the major consideration being Who is Responsible for the cleanup and how is that responsibility maintained?  For this example, we will assume that the buyer will be taking the role of PRCR as defined below.

A Responsible Party is a party that has an affirmative obligation to remediate, as defined by the Brownfield and Contaminated Sites Act, N.J.S.A. 58:10B-1.3, as stated below:

“An owner or operator of an industrial establishment subject to the provisions of P.L.1983, c.330 (C.13:1K-6 et al.), the discharger of a hazardous substance or a person in any way responsible for a hazardous substance pursuant to the provisions of subsection c. of section 8 of P.L.1976, c.141 (C.58:10-23.11g), or the owner or operator of an underground storage tank regulated pursuant to the provisions of P.L.1986, c.102 (C.58:10A-21 et seq.), that has discharged a hazardous substance, shall remediate the discharge of a hazardous substance.”

A Person Responsible for Conducting the Remediation includes all parties who are conducting remediation, regardless of their status as a Responsible Party. A Person Responsible for Conducting the Remediation is defined by SRRA, N.J.S.A. 58:10C-2, as stated below:

"Person responsible for conducting the remediation" means (1) any person who executes or is otherwise subject to an oversight document to remediate a contaminated site, (2) the owner or operator of an industrial establishment subject toP.L.1983, c.330 (C.13:1K-6 et al.), for the remediation of a discharge, (3) the owner or operator of an underground storage tank subject to P.L.1986, c.102 (C.58:10A-21et seq.), for the remediation of a discharge, (4) any other person who discharges a hazardous substance or is in any way responsible for a hazardous substance, pursuant to section 8 of P.L.1976, c.141 (C.58:10-23.11g), that was discharged at a contaminated site, or (5) any other person who is remediating a site.”

The seller is and always will be the Responsible Party for the site and until real estate is transferred they are also the PRCR.  The new buyer can assume the mantle of PRCR and continue the remediation of the site.  If the buyer assumes the PRCR and then fails to meet their obligations and the DEP gets no response from them, the seller (former owner) will be contacted by the DEP as the original RP to continue with the remediation. 

In English, the seller holds responsibility for life. If the buyer fails to clean up the site, the seller will be on the hook.   Attorneys can protect a seller with language in the agreement of sale transferring RP/PRCR roles.

There is a form that is submitted to DEP adding the new property owner as the PRCR if that is the agreement.   The legal wording must have a foundation of what the new buyers and sellers’ responsibilities will be regarding the future environmental work at the site.

An alternative to transferring the responsibility of the cleanup is for the seller to maintain responsibility and positive control of the cleanup after the sale.  Defining cleanup is also very important.  For example, many contaminated sites never get 100% cleaned up by removing or remediating the contamination, rather the contamination is permitted in place. Clean is not clean, but rather legal contamination. If your agreement of sale sells you will promise a clean site, define clean.

It sounds complex and confusing.   There can be many variables involved, call a professional.

 

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A Phase I ESA is like your common screwdriver, a trusty, and dependable tool that most people know what it is used for, just like buyer due diligence, which is your insurance when buying a property.  A Phase I when completed properly provides protection under CERCLA, the Federal Superfund law, so Federal protection.

A Preliminary Assessment or "PA" is more like the tool in your workbench that you are not 100% sure what it is or how to use it.  New Jersey has its own innocent purchaser defense that requires a property owner to demonstrate that, at the time they acquired the property, they did not know and had no reason to know that any hazardous substance had been discharged at the property, by performing an “all appropriate inquiry” prior to purchase.  The PA provides NJ innocent landowner defense. 

 

A Phase I Environmental Site Assessment is meant to identify Recognized Environmental Conditions (REC)as defined by the American Society for Testing Materials (ASTM).   A Phase I report will include a comprehensive records review, interviews with knowledgeable parties, noninvasive walking inspection of the property, any data gap identification, an environmental lien search, and a comprehensive historical records review (think a 100 year lookback).

The current ASAT standard for a Phase I is E1527-21 which outlines how to assess the environmental condition of the Property utilizing the All Appropriate Inquiry (AAI). AAI is defined as an inquiry into the previous ownership and use of the Subject Property consistent with good commercial or customary practice as defined by CERCLA 42 U.S.C. §9601(35) (B). According to ASTM E1527-21, non-scope considerations that a consultant may want to assess in connection with commercial real estate and to which no implication is intended as to the relative importance of inquiry into such non-scope considerations consist of: asbestos-containing building materials; radon; lead-based paint; lead-in-drinking water; wetlands’ regulatory compliance; cultural and historic resources; industrial hygiene; health and safety; ecological resources; endangered species; indoor air quality; biological agents; and mold.

A Phase I includes zero testing but may find RECs that require testing.  The Phase I evaluates a property’s environmental condition and assess its potential liability for contamination. 

A Preliminary Assessment follows EPA guidelines not ASTM and is like a Phase I on steroids. The Preliminary Assessment will include an Order of Magnitude Analysis to ensure that previously generated environmental data is compliant with current regulations.  The PAR (Preliminary Assessment Report) is more detailed regarding both research and database research.  The Preliminary Assessment will look at historical manufacturing directories, deeper level of contamination identification, including recommendation(s) should the PA reveal any Areas of Concern (AOC) that require further investigation.  The more extensive environmental evaluation in a Preliminary Assessment entails a search/evaluation of the Site, specific to both current and historic operational and environmental information to determine if there have been any confirmed or potential releases or discharges.  A key part of this is an “Order of Magnitude” evaluation comparing past investigation results to current regulations and standards. Standards change and what may have been acceptable in the past can be out of compliance today.  Past environmental investigations can be found to be lacking and not compliant with today's standards, thus requiring further evaluation.  The additional layer of evaluation helps support a property owners NJ Innocent Purchaser Defense and, in some circumstances, can help acquire funding to remediate sites should contamination be found that was not identified in the report. 

Phase I  Preliminary Assessment Pro Tip 

In New Jersey, if you are opening a daycare or are subject to ISRA,  you need to complete PA, as NJDEP requires a PA not a Phase I.

 

Important facts about a Phase I vs a Preliminary Assessment

1.   A Phase I ESA is a screening tool to evaluate possible environmental liabilities at a property.   It is strictly lender level ASTM compliant research and data review for financial transactions. The party paying for the Phase I may choose to not investigate(test) any RECs from the Phase I.  A Preliminary Assessment covers state (NJ-specific) liability and is necessary to be in compliance with NJDEP's Technical Requirements for Site Remediation (N.J.A.C. 7:26E)  to obtain protection from potential liability as an innocent landowner (under the NJ Spill Compensation and Control Act N.J.S.A. 58:10-23.11) 

2.  The timing of a Phase I is 2 to 3 weeks.  A Preliminary Assessment takes longer and can  take 20-45 days, due to the additional research involved and you have to wait to receive File Review replies from local and state agencies.

 Can you combine a Phase I & Preliminary Assessment?

Curren has been working on PHIs for over 30 years and this has been a more recent trend in real estate sales.  Curren has been performing PHI/PAR reports for many clients with legal representation in the transaction.   

Phase I or Preliminary Assessment Questions?

Call the Experts

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No testing is performed during the typical PHI and PAR.  The sampling would be performed during the PHII ESA or Site Investigation phase.