In October 2024, the New Jersey Department of Environmental Protection (NJDEP) published a proposed rule (the “Proposed Rule”) that would amend its site remediation rules to codify and implement provisions of the legislation known as SRRA 2.0, which became effective on August 23, 2019. Most notably, the Proposed Rule would amend the Administrative Requirements for the Remediation of Contaminated Sites (ARRCS), N.J.A.C. 7:26C, to require prospective purchasers of real property conducting pre-closing environmental due diligence to, upon the discovery of a previously unidentified discharge of hazardous substances, immediately notify the NJDEP and the record owner.
What You Need to Know:
- Last month, NJDEP proposed a new rule that would, among other things, require a prospective purchaser of real property who obtains specific knowledge during pre-closing due diligence of a discharge of hazardous substances on the property to immediately notify NJDEP and the contract seller (record owner) of the discharge, potentially triggering further investigation and remedial obligations.
- Until now, reporting obligations have not extended to prospective purchasers performing environmental due diligence.
- The Proposed Rule, if adopted as is, could discourage real estate deals in New Jersey.
- The comment deadline for the Proposed Rule is January 31, 2025.
If promulgated, the Proposed Rule would represent a notable transformation of reporting obligations that would likely have a chilling effect on the state’s commercial real estate market. Any person conducting pre-closing environmental due diligence – the prospective purchaser and the environmental professionals engaged by the prospective purchaser to perform due diligence – would have a reporting obligation. The Proposed Rule clarifies that a person undertaking “all appropriate inquiry,” such as in the context of environmental due diligence prior to property acquisition, will not be liable for the discharge’s cleanup and removal costs unless and until that person ultimately acquires the property. The current owner, however, may face investigation and remedial obligations related to a discharge uncovered by a prospective purchaser’s environmental due diligence.
To date, it has been generally accepted practice that prospective purchasers performing due diligence need not report the discovery of contamination to the property owner or any regulatory authority. As such, purchase agreements in New Jersey involving the sale of potentially contaminated properties routinely include provisions requiring prospective purchasers who perform environmental testing to keep those results confidential. This enables prospective purchasers to test for contamination, with the ability to terminate if they do not like the results of the testing, without the seller obtaining knowledge of latent contamination. Likewise, many purchase agreements prohibit the use of a licensed site remediation professional (LSRP) for due diligence, since LSRPs have heightened reporting obligations under N.J.A.C. 7:26I-6.10.
The Proposed Rule also includes amendments related to the remedial action permit process, including new remedial action permit types, changes to the laws governing the establishment of remediation funding sources, clarifications regarding the LSRP program, as well as technical changes. The proposed changes would affect a number of site remediation regulations including the Industrial Site Recovery Act (ISRA) Rules (N.J.A.C. 7:26B), the Technical Requirements for Site Remediation (N.J.A.C. 7:26E), the Heating Oil Tank System Remediation Rules (N.J.A.C. 7:26F) and the aforementioned ARRCS. If adopted, these changes will significantly impact requirements for owners, operators or other persons responsible for remediating sites throughout New Jersey.
The comment deadline for the Proposed Rule has been extended from December 20, 2024 to January 31, 2025. Comments can be submitted electronically or by mail to:
Attn: DEP Docket Number: 12-24-09
Office of Legal Affairs
Department of Environmental Protection
401 East State Street, 7th Floor
Mail Code 401-04L
PO Box 402
Trenton, New Jersey 08625-0402
