Certain business transactions involving property in New Jersey now risk facing expanded environmental obligations if the parties do not follow an administrative policy that has been quietly revised by the New Jersey Department of Environmental Protection (“NJDEP”). The environmental obligations at issue arise under the New Jersey Industrial Site Recovery Act (“ISRA”), which requires owners and/or operators of “industrial establishments” in New Jersey that cease operations or undergo a transfer of ownership or operational control to conduct an environmental review of and, if necessary, remediation of the industrial establishment prior to closing the transaction. However, ISRA allows those responsible for “industrial establishments” to avoid complying with the substantive requirements of ISRA as long as the establishment qualifies for a De Minimis Quantity Exemption (“DQE”). A DQE is available if an industrial establishment only has small (i.e., de minimis) amounts of hazardous materials present on site, and must be approved by the NJDEP based on an application submitted in connection with the transaction.
Until August 2019, the owner or operator of an industrial establishment that qualified for a DQE was able to apply for a DQE even after consummation of the transaction that triggered ISRA. Indeed, that practice was affirmed in 2017 by the Appellate Division, which found that the former owner of an ISRA subject property could seek a DQE twenty years after the sale of the property to a new owner. R&K Associates, LLC v. NJDEP, 2017 WL 1316169 (April 10, 2017) (holding “[i]f liability under ISRA can extend to a former ‘owner’ then the avenue for an exemption equitably and logically should extend reciprocally to qualified former owners, as well.”) With the publication of a new DQE application form, NJDEP now states that if the sale or transfer of ownership or operations has already occurred, the industrial establishment is not eligible for a DQE. As a result, owners and operators that were eligible for the exemption will now have to substantively comply with ISRA unless they apply for and receive a DQE prior to the completion of the transaction.
NJDEP’s new policy may be subject to challenge because it is not based on a statutory or regulatory amendment and the change in policy clearly conflicts with the holding of the Appellate Division in R&K Associates. In any event, owners and operators of industrial establishments should take heed that failure to comply with the policy may expand their obligations under ISRA by requiring substantive compliance even when a DQE would have been available.