Main Menu
Parker McCay Blog
Conducting Environmental Due Diligence in New Jersey: Is Obtaining both a Phase I and a Preliminary Assessment Necessary?
January 29, 2016

There still appears to be some confusion as to whether environmental due diligence for the acquisition of New Jersey commercial or industrial property requires conducting a Phase I Environmental Site Assessment, a Preliminary Assessment, or both.

In short, a purchaser of New Jersey commercial or industrial property must conduct both a Phase I Environmental Site Assessment (“Phase I”) and a Preliminary Assessment.  This is why . . .

Under both the federal Comprehensive, Environmental Response, Compensation and Liability Act (“CERCLA”), 42 U.S.C. §9601, et seq., and the New Jersey Spill Compensation and Control Act (“Spill Act”), N.J.S.A. 58:10-23.11, et seq., current property owners are potentially liable, regardless of fault, for  any contamination identified at that property.  Once a buyer acquires ownership of property, that buyer may face liability under both CERCLA and the Spill Act for pre-existing contamination.  To qualify for a limitation or defense to potential liability for pre-existing contamination, a buyer must conduct “All Appropriate Inquiries” under CERCLAand “Appropriate Inquiry” under the Spill Act prior to the time of acquisition.

CERCLA “All Appropriate Inquiries” requires a buyer to investigate the past use of property prior to the time of acquisition by conducting a Phase I in accordance with U.S. Environmental Protection Agency (“EPA”) regulations, 40 CFR Part 312 (“AAI Rule”).  Under the AAI Rule, a buyer may follow ASTM E1527-13: Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process when conducting “All Appropriate Inquiries.”  A buyer who complies with the AAI Rule satisfies a requirement for the innocent landowner, bona fide prospective purchaser, and contiguous property owner limitations to CERCLA liability.

In most states, conducting a Phase I satisfies a buyer’s appropriate inquiry requirement for a limitation to liability under that state’s environmental liability law.  Not so in New Jersey.  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.”  N.J.S.A. 58:10-23.11g(d).  The Preliminary Assessment and Site Investigation must be conducted in accordance with the Technical Requirements for Site Remediation, N.J.A.C. 7:26E-1.1, et seq., in order to satisfy a requirement of the Spill Act “innocent purchaser” defense to liability.  A buyer is not required to hire a Licensed Site Remediation Professional to conduct a Preliminary Assessment and Site Investigation for “Appropriate Inquiry” purposes.  N.J.S.A. 58:10B-1.3(a).  In addition, a Response Action Outcome, which is the final document issued after remediation is complete, is not required for a Preliminary Assessment and Site Investigation conducted for “Appropriate Inquiry” purposes unless those investigations identify contamination at the property that requires remediation.

The scope of a CERCLA Phase I and a Spill Act Preliminary Assessment are similar but not identical.  Therefore, a buyer cannot rely on a CERCLA Phase I to satisfy the Spill Act “Appropriate Inquiry” requirement for the Spill Act “innocent purchaser” defense to liability.  Recently, a New Jersey court rejected arguments that reliance by the principal of a company on an inquiry to local officials and on an EPA Mini Pollution Report satisfied the Spill Act requirement for an “innocent purchaser” defense to liability.  New Jersey Dep’t of Environmental Protection v. Navillus Group, Docket No. A-4726-13T3 (N.J. App. Div. Jan. 14, 2016).  The court specifically stated that the Spill Act “innocent purchaser” defense was unavailable because the principal failed to conduct a Preliminary Assessment as defined in the Spill Act.

When engaging an environmental consultant to assist in the environmental due diligence process, a buyer should ask the consultant about his or her experience in preparing a combined Phase I/Preliminary Assessment report.  A combined report that includes the elements of both a Phase I and a Preliminary Assessment may save the buyer both time and money and will simplify the environmental due diligence process.  A buyer of New Jersey commercial or industrial property should always hire an experienced environmental attorney to counsel the buyer on potential environmental risks and liabilities associated with the property and to assist the buyer in satisfying the requirements for limiting potential liability under CERCLA and the Spill Act.

Subscribe for Updates
Subscribe to this blog's feed

Categories

Back to Page