The Industrial Site Recovery Act ("ISRA") requires owners or operators of "industrial establishments" to investigate and, if necessary, remediate contamination at their properties when closing operations or transferring ownership or operations. Although the Act has been in effect in one form or another for 14 years, many among the regulated community retain certain misconceptions about it. Following is an attempt to answer questions that often arise for owners and operators of industrial properties.
1. An "industrial establishment" is not always industrial. It is defined as a facility that has a subject Standard Industrial Classification ("SIC") number and uses or stores hazardous substances. If a facility has a subject SIC number, it will be considered an industrial establishment even if the only hazardous substance stored and/or used is heating oil.
2. An ISRA Letter of Nonapplicability, or LNA, does not mean that the subject property is free of contamination. The significance of an LNA is that ISRA does not apply to the property either because the facility is not an "industrial establishment," as defined by the Act, or because the transaction is not one to which ISRA applies.
3. ISRA does not require an owner or operator to obtain an LNA. LNAs should be obtained if the owner or operator is uncertain whether ISRA applies to its transaction or facility. Quite often, another party to a transaction as a matter of routine business practice will request that the owner or operator obtain an LNA even though non-applicability is readily apparent.
4. If a property is subject to multiple uses, some of which are manufacturing, the property still might not be an "industrial establishment," and therefore, might not be subject to ISRA. ISRA looks at the primary use of each facility to determine applicability.
5. Some warehouses are subject to ISRA. ISRA applicability is determined by the types of products that are warehoused and the business of the entity for whom the products are warehoused.
6. Some research and development laboratories are subject to ISRA. Again, it depends upon the nature of the entity for whom the research is done.
7. Transactions among related companies might still be subject to ISRA depending upon the effect of the transaction on the net worth of the owner or operator of the facility.
8. Although bankruptcy proceedings are intended to protect bankrupt entities from creditors, certain transactions in bankruptcy are subject to ISRA.
9. If a facility is subject to ISRA, an owner or operator can be required to remediate contamination even if it was caused by a predecessor.
Despite ISRA's apparent simplicity, determining whether ISRA applies to your facility or transaction can often be a complex factual and legal issue.
