The Appellate Division recently held that a purchaser of real property who relied upon the seller's false representations that contamination resulting from a leaking underground storage tank (UST) had been remediated became "in any way responsible" pursuant to the Spill Compensation and Control Act (Spill Act) for the costs of excavating the USTs and remediating the contaminated soil that remained on site. Consequently, Buyer's bid to recover its cleanup costs from the Spill Fund was denied in Newhan Properties and Management Corp. v. State of New Jersey, Dept. of Envtl. Protection.
In 1988, Newhan Properties considered purchasing a four-store retail building in Cherry Hill, New Jersey. During an inspection that expressly excluded an evaluation of environmental hazards and recommended an independent evaluation for that purpose, the inspector noted that a UST was leaking oil near the fill cap and recommended that Newhan have the tank and contamination "thoroughly evaluated." Newhan's attorney wrote Seller's broker and listed several conditions that Seller had to satisfy before the property would be purchased "as is." Buyer insisted that: (1) the oil leakage around the UST shall be repaired and cleaned up; (2) the UST shall be certified to be free of all leaks; (3) Seller shall comply with the requirements of the Leaking Underground Storage Tank law; and (4) Seller shall remove all old heating oil fill pipes.
Seller agreed to make the requested repairs. Closing occurred on April 5, 1988 and $2,400 was placed in escrow to assure Seller's compliance with the obligations it accepted. In an April 28, 1988 letter, Seller represented to Newhan that all repairs had been completed.
Representatives of Newhan reinspected the property to confirm that the necessary work had been completed. During the reinspection, they observed that the area of the leaking UST was newly paved and the asphalt was not stained, that no pipes were apparent in the area, and that an above-ground storage tank had been installed. Satisfied by these observations, Newhan released the $2,400 held in escrow to Seller.
The Appellate Division concluded that Newhan had "closed its eyes to the facts presented to it" by failing to heed the advice of its professionals, who had recommended taking reasonable steps to determine the extent of the problem. The court specifically noted that Newhan should have obtained an independent evaluation of potential oil spills from the known USTs on site, as recommended by its inspector. Newhan also should have inquired of Seller whether the site contained other USTs and should have requested a certification that the USTs were not leaking, as suggested by its attorney.
The impact of the Newhan Properties decision probably will be limited because the purchase of the property by Newhan pre-dated both the current Spill Act provision and NJDEP regulations that define the due diligence that a purchaser must undertake to avoid being considered "in any way responsible" for a pre-purchase discharge. This is so because the statutory amendment and regulation, each of which took effect in 1993, clearly provide the most important guidance on this issue for subsequent property purchases. Thus, although the Newhan Properties decision may provide some useful insight for post-1993 due diligence, the decision is most important for the holding that the failure to follow the advice of professionals constitutes insufficient due diligence under a pre-1993 common law analysis.
