The Devil Is in the Details (Or Lack Thereof): A Costly Lesson in Allocating Environmental Responsibility in Contracts

A seller of a car wash property located in North Bergen, New Jersey recently learned the hard way that its failure to understand the nature and magnitude of contamination found on its property, and to clearly define in a contract of sale the scope of its obligations associated therewith, can be quite costly.  In June, the Appellate Division of the New Jersey Superior Court upheld a trial court’s order directing the seller to fully remediate previously undiscovered environmental contamination at the property in accordance with its contractual obligations, which according to seller, was more than it had bargained for.  Hector v. Super Car Wash LLC, et al., Docket No. A-3131-17T1 (N.J. App. Div. Jun. 10, 2019). 

In Hector, the purchaser performed pre-purchase due diligence sampling that revealed the presence of soil contamination.  As a result of these findings, the parties negotiated a rider to the contract of sale whereby seller agreed to “remediate all such contamination prior to closing … at the expense of seller” and to “cleanup any additional contamination that may be discovered during the course of [the] remediation.”  After amending the agreement with the rider, seller began to remediate the soil contamination, but when further investigation by seller’s own environmental consultant revealed the presence of groundwater contamination, seller refused to clean it up.

After a bench trial, the trial judge concluded that the rider was unambiguous and required seller to clean up not only the known soil contamination, but also the groundwater contamination that was subsequently discovered during the course of the remediation.  On appeal, seller argued that the rider was unenforceable because there was no consideration and no meeting of the minds between the parties.  The Appellate Division rejected seller’s arguments and affirmed the trial court’s ruling.   The court found that seller’s agreement to forego termination of the contract, despite the discovery of environmental contamination, was appropriate consideration for seller’s agreement to the rider.  It also found that seller’s internal belief that its obligations were limited to remediation of soil contamination could not change the rider’s unambiguous terms, which plainly required seller to remediate “any additional contamination that may be discovered during the course of the [soil] remediation.”

This case is a stark reminder of the importance of hiring experienced and competent environmental professionals (including environmental legal counsel) to assist in the purchase and sale of contaminated or potentially contaminated property.  In fact, purchaser’s due diligence report revealed that the soil contamination was in excess of the applicable impact to groundwater standards (“IGWS”).  Although the IGWS is technically a soil standard, it indicates whether soil contamination may reach, and therefore, impact groundwater.  An experienced environmental consultant or attorney likely would have recognized that the contamination could extend to the groundwater.  With this understanding, the seller could have more carefully crafted the language of the rider to limit its remediation obligations.  Unfortunately for seller, the language in the rider obligating seller to remediate was extremely broad, and thus exposed seller to additional, costly liabilities that it did not intend to assume.

For more information, please contact the author Jaan M. Haus at jhaus@riker.com or any attorney in our Environmental Practice Group.