[The following is an excerpted from “Environmental Liability: Managing Environmental Risks in Corporate, Real Estate and Brownfield Transactions” written by Larry Schnapf and published by Juris Law Publishing]
New Jersey Industrial Site Recovery Act

A handful of states have enacted property transfer statutes, which prohibit the transfer of commercial properties until the state has been notified and an inspection and cleanup, if necessary, has been performed. Other states have passed disclosure statutes that simply require sellers or transferors to inform prospective buyers or lessees where hazardous wastes were managed on the property and sometimes also to file notices of any releases of hazardous substances in local land records. This article will discuss the requirements of the New Jersey transfer statute.

1. Overview

In 1983, the New Jersey legislature enacted its landmark Environmental Cleanup Responsibility Act {“ECRA”) which was designed to achieve expeditious cleanups and to shift the burden of restoring industrial or commercial property to the parties responsible for the contamination. ECRA required owners and operators of industrial establishments associated with the generation, storage or disposal of hazardous substances to investigate and remediate their facilities before the operations could be transferred or closed.
Initially, the New Jersey Department of Environmental Protection (“DEP”) severely underestimated the number of transactions that would become subject to the law. Also, the interim regulations promulgated by the DEP failed to adequately describe the transactions covered by ECRA and caused the ECRA staff to develop a number of unwritten internal policies to fill in the gaps. After several administrative attempts to streamline the program, the New Jersey legislature substantially amended the law in 1993 and renamed it the Industrial Site Recovery Act (“ISRA”) in 1993. ISRA codified some of the DEP policies, but in other cases departed significantly from DEP or ECRA practice.

2. Triggering ISRA

ISRA prohibits an owner or operator of an industrial establishment transfering operation until the DEP issues a no further action (“NFA”) letter, approves a remedial action plan, the owner or operator has executed a remedial agreement  or the DEP has issued an authorization letter. If the industrial establishment is to be closed, the owner or operator must provide a General Information Notice to the DEP and otherwise comply with ISRA. Thus, an owner or operator of an industrial establishment planning to transfer or close the operation should determine if ISRA will apply prior to the transaction. There are three conditions that must occur for ISRA to be triggered.

A. Industrial Establishment

The first condition is that there must be a transfer or closing of an “industrial establishment”. ISRA defines an “industrial establishment” as any place of business having a primary standard industrial classification (“SIC”) number of 22-39, 46-49, 51 or 76. The SIC numbers covered by ISRA include manufacturing, transportation, wholesale distribution operations and many service establishments that are likely to handle hazardous substances or hazardous wastes. The DEP has exempted certain classes of businesses within the covered SIC groups because they do not typically handle hazardous substances or hazardous wastes. Two significant industries that use hazardous substances, gasoline service stations and farm operations, are also exempt. In addition, establishments that are subject to the closure and post-closure requirements of RCRA and businesses that closed operations prior to December 31, 1983 are exempt from ECRA, although this latter exemption will not apply if hazardous wastes remain stored on-site. 
Determining whether a business is an "industrial establishment" can be a difficult task when several operations with different SIC numbers are conducted at the premises. It is important to remember that DEP will look at the "primary" use of the facility when determining the SIC number of the business. Thus, in order to fall outside the definition of "industrial establishment," the owner or operator will have to establish to the satisfaction of the DEP that its primary operation docs not have a covered SIC number. In evaluating what activity is the primary operation of the industrial establishment, the DEP will assess the number of employees and square footage utilized by each operation, as well as the sales or revenue generated by each operation.
Another frequent problem is how to treat a warehouse facility associated with a manufacturing operation. DEP has adopted the "auxiliary facility" rule set forth in the SIC Manual that states that facilities such as a warehouse, garage, office, or research laboratory that are used to support another operation within the organization assume the SIC number of the operation that it supports. However, the DEP has created a "finished goods warehouse" exemption which provides that certain warehouse operations will not be considered "auxiliary facilities" but instead will have their own warehouse SIC number that is exempt from ISRA. In order to qualify for the "finished goods warehouse" exemption, the facility must be a wholesale distribution warehouse used to store goods that fall under SIC group 50 or certain exempted subgroups under SIC group 51 AND the warehouse must be non-contiguous to the manufacturing facility. In some instances, DEP has ruled that warehouses that contained small amounts of hazardous substances from discontinued light manufacturing or assembly operations were industrial establishments subject to ISRA.
The definition of “industrial establishment” includes all of the blocks and lots where the operations are conducted. It also includes contiguous blocks and lots controlled by the owner or operator, such as parking lots, warehouses or vacant lands, used in connection with the business.  For leaseholds, the industrial establishment includes any structures or vessels, such as external tanks, septic tanks or storage containers, that support the leasehold and are used to store hazardous wastes or substances even if these structures are physically outside of the leasehold. 
It should be noted that vacant or undeveloped land may not be considered an industrial establishment if two conditions are satisfied. The first condition is that an industrial establishment did not operate at the site since December 31, 1983. Second, the contiguous land may not be an industrial establishment under the same control or ownership as the vacant land.

B. Hazardous Substance
 
Once it is determined that a business falls within a covered SIC code, the next step is to determine whether the business is engaged in operations involving the generation, manufacture, refining, transportation, treatment, storage or handling of hazardous substances or wastes. The types of hazardous substances and wastes covered by ISRA include the "List of Hazardous Substances" established by the DEP, under the New Jersey Spill Compensation and Control Act, which includes the list of hazardous substances identified under section 311 of the federal Clean Water Act and the toxic pollutants of section 307 of the federal Clean Water Act. Also regulated are substances identified as hazardous wastes. Under the regulations promulgated by the DEP, all petroleum products, including heating fuels and lubricating oils, constitute hazardous substances so that businesses using or storing these substances will fall within the purview of ISRA. In addition, establishments that use commercial products such as cleaning fluids, solvents and degreasers are also subject to ISRA unless the products are present in de minimis amounts.
Indeed, a New Jersey appellate court ruled that the presence of heating oil at a place of business would subject the company to ECRA. In G&S Investors Frelinghuysen Avenue, Inc. V. Aristocrat Leather Products, Inc., the plaintiff tried to rely on a Letter of Non-Applicability (“LNA”) obtained from its seller when the plaintiff sought to sell the property. The LNA had been obtained on the basis that there was no industrial establishment because no hazardous substances were present on the property. However, when the DEP learned that heating oil was stored in a leaking underground storage tank, the agency rescinded the LNA and the plaintiff was compelled to remediate contamination. In the indemnity action, the trial court ruled that heating oil was not used as an integral part of the operation of the business but was for an ancillary purpose. Therefore, the court held that ECRA did not apply. However, the appellate court disagreed. The court held that the mere presence of hazardous substances was sufficient to satisfy the second prong for ECRA applicability and that it was immaterial how the hazardous substance was used.
The reader should refer to Appendix 0 for examples of DEP determinations on the existence of industrial establishments.
C. ISRA Transaction

Finally, there must be a transfer of ownership or operations as well as the closing of operations of an industrial establishment. Over the years, DEP has refined its regulations to precisely define which types of transactions are subject to ISRA. Following is a list of the ISRA transactions.

(1)	The following transactions are considered a transfer of the ownership or operation of an industrial establishment:

(a)	Any transaction involving a “change in ownership” of an industrial establishment. DEP defines a "change in ownership" to include the following transactions:

(i)	The sale or transfer of any business of an industrial establishment 

(ii)	The sale or transfer or any of the real property on which the industrial establishment operates, including any of the blocks and lots upon which the operations were conducted and any contiguous blocks and lots of vacant land that is controlled by the same owner or operator;

(iii)	The sale or transfer of stock in a corporation or interest in a limited liability company resulting in a merger or consolidation of the partnership or corporation that owns or operates an industrial establishment either directly or through a subsidiary;

(iv)	The sale or transfer of stock in a corporation or interest in a limited liability company resulting in a change in the person holding a controlling interest in the partnership or corporation that owns or operates an industrial establishment either directly or through a subsidiary;

(v)	The sale or transfer of stock in a corporation or interest in a limited liability company that owns or operates an industrial establishment either directly or through a subsidiary provided that the parent’s assets that would be available would be reduced by more than ten percent.  

(vi)	The sale or transfer of an interest of a general partnership in a general partnership or in a limited partnership or the sale or transfer of a limited partnership interest in a limited partnership under certain circumstances;

(vii)	The sale or transfer of the sole general partner’s entire interest in a limited partnership under certain circumstances;

(viii)	The reorganization of a general or limited partnership into a corporation, limited liability company, limited liability partnership or other similar business entity;

(ix)	Exercising an option to purchase that results in the sale or transfer of title to an industrial establishment or the real property of the industrial establishment; 

(b)	The sale or transfer of more than 50 percent of the assets of an industrial establishment within any five-year period measured on a constant, annual date-specific basis;

(c)	Dissolution of an entity that owns or operates an industrial establishment except that in the case of the dissolution of a subsidiary that owns the industrial establishment where the subsidiary's assets would have been unavailable for the remediation of the industrial establishment had the dissolution not occurred; and

(d)	Execution of a lease for 99 years or longer;

(e)	Any transfer of an industrial establishment to a trust except where the grantor and beneficiary are identical or are members of the same family.

(2)	The following events will be considered the “closing operations”  at an industrial establishment:

(a)	Cessation of operations of (i) an industrial establishment that has a regular product output when there is at least a 90 percent reduction in the total value of the product output from the entire industrial establishment or (ii) an industrial establishment where product output is undefined when there is a 90 percent reduction in the number of employees or a 90 percent reduction in the area of operations within any five-year period, provided, however, the DEP may approve a waiver for any owner or operator who demonstrates a good faith effort to maintain and expand product output, the number of employees or the area of operations of the affected industrial establishment;

(b)	A temporary cessation of operations of an industrial establishment for a period of not less than two years;

(c)	Any judicial or final agency action that causes an industrial establishment to become non-operational for health or safety reasons;

(d)	Initiation of bankruptcy proceedings pursuant to Chapter 7 of the federal Bankruptcy Code or the filing of a plan of liquidation pursuant to Chapter 11 of the federal Bankruptcy Code;

(e)	Any change in operations that changes the SIC number of the industrial establishment to a SIC number that is not subject to ISRA; 

(f)	Termination or assignment of a lease unless there is no disruption in operations of the industrial establishment; and

(g)	The assignment of a lease or sublease unless there is no change in the operator of the industrial establishment and no disruption in operations of the industrial establishment.

D. Excluded Transactions-

The following transactions are shall not be deemed to be closing or transferring operations or an "change in ownership" that would trigger ISRA:

(1)	A corporate reorganization that does not substantially affect ownership of the industrial establishment;

(2)	A transaction or series of transactions involving the transfer or stock or assets among corporations of common ownership where the transactions(s) will not result in the diminution of the net worth of the entity that directly owns or operates the industrial establishment by more than 10 percent or if an equal or greater amount of assets is available for the remediation of the industrial establishment after the transaction;

(3)	A transaction or series of transactions involving the transfer or stock or assets resulting in a merger, de facto merger or consolidation of a indirect owner (i.e., parent corporation) with another entity, or a change in the person holding the controlling interest of the indirect owner of the industrial establishment where the indirect owner's assets would have been unavailable for cleanup if the transaction(s) had not occurred;

(4)	A transaction or series of transactions involving the transfer of stock and/or assets resulting in a change in the person holding the controlling interest of a parent corporation whose assets would have been unavailable for remediation if the transaction or transactions had occurred.

(5)	A transfer where the transferor is a sibling, spouse, child, parent, grandparent, child of a sibling or sibling of a parent of the transferee;

(6)	A transfer of an industrial establishment by devise or intestacy;

(7) A transfer to confirm or correct any deficiencies in the recorded title or an industrial establishment;

(8) A transfer to release a contingent or reversionary interest except for any transfer of a lessor's reversionary interest in leased property;

(9)	The granting or termination of an easement or license to any portion of an industrial establishment;

(10) The sale or transfer of real property or closing of an industrial establishment pursuant to a condemnation proceeding;

(11) Execution, filing or recording of a mortgage, security interest, collateral assignment or other lien on real or personal property;

(12)Any transfer of personal property by replevin or seizure pursuant to a valid security agreement, collateral assignment or other lien where the personal property was collateral for the secured interest and the purpose of the transfer is to exercise the secured party's rights in the collateral.

(13)A sale or transfer of assets of an industrial establishments that is in the ordinary course of business;

(14) Termination of a lease of an industrial establishment where the lease is renewed by the same tenant without disrupting operations;

(15) Execution of a lease for less than 99 years

(16) The sale of a single or mult-family dwelling used primarily for residential purposes

(17) The transfer to a beneficiary pursuant to a trust

(18) Change, substitution or replacement of a trustee, adminstrator, executor, guardian, conservator or fidicuary where the trust, estate or other entity is the owner or operator of the industrial establishment;

(19) Obtaining construction loans by the owner or operator of the industrial establishment;

(20) A change in SIC number due to a change in the SIC manual without a chgange in the operations of the industrial establshment;	

(21) The sale or transfer of stock or assets, or both, in a corporation if the saale or transfer is part of a reorganization into a limited liability corporation  which does not result in the diminution of the net worth of the corporationand limited liability company that directly owns or operates the industrial establishment before and after the transaction and does not result in a change in the person holding the controlling interest of the entity, and;

(22) A transaction or a series of transactions involving the transfer of stock or assets of a corporation, or the sale or transfer of interest in a limited liability corporation which owns the industrial establishment directly or through a subsidiary and which results in a merger or consolidation where the parent or subsidiary is the surviving or resulting entity. 	     	
		
3. Expanded Discussion of Particular ISRA Transactions

ISRA applies to closing, terminating or transferring operations of an industrial establishment. In many instances, there will be no question that a proposed transaction will trigger ISRA. However, the applicability of ISRA may not be as clear in other transactions.

A. Corporate Reorganizations

In general, any change in ownership will trigger ISRA. A major exception is a corporate reorganization that does not substantially affect ownership. The ISRA regulations limit this exception to transactions that did not reduce the assets available for cleanups. Specifically, the term means a restructuring or re-incorporation by the management (e.g. the board of directors) or the owners of an entity (e.g. shareholders) that does not affect the assets available for any cleanup, does not diminish the ability of the DEP to reach those assets or otherwise hinder the owner/operator from cleaning up the facility. For purposes of determining if a transaction would be a corporate reorganization not substantially affecting the ownership of the industrial establishment the DEP will look at the following factors: 

•	Does the transfer of stock or assets occur solely between corporations under common ownership or control? For purposes of this section, related corporations that prepare consolidated financial statements or returns are presumed to have common ownership or control; 
•	Will the transaction diminish the net worth of the industrial establishment or the person directly owning or operating the industrial establishment by more than 10 percent in the aggregate based on the preceding five year period? 

•	If the transaction involves an indirect owner (e.g., parent corporation), would any of the assets of the indirect owner been available for remediation? 

In performing this analysis, the DEP will use an "ability to control” test for parent-subsidiary transactions. The DEP has indicated that such control could be evidenced through the control of the subsidiary’s board of directors or through the strategic placement of personnel within the offices of the subsidiary. The agency indicated that the key factor will be whether the indirect owner is in a position to control the activities, policies or decisions of the direct owner. The DEP has stated that this ability to control is not limited to the generation, handling, storage or disposal of hazardous substances but may manifest itself through control over the budget of the direct owner where the indirect owner could favor non-environmental improvements over environmental improvements. If so, the indirect owner would be considered to have the ability to control the direct owner and the indirect owner’s assets would be considered available for remediation.  

B. Sale of Controlling Interest-Stock Transfers

An industrial establishment must seek DEP approval when there is a transfer of a "controlling interest" of its stock or the stock of the corporation owning the facility. The term “controlling inteerst” refers to the interest held by the person or persons who possess the power to direct or cause the direction of the management and policies of the a corporation, partnership or other business entity. The DEP practice is to look at the management prior to the transaction to determine whether control is being transferred.  
Under the criteria established by the DEP, a controlling interest may refer to the stockholder or stockholders who own 50 percent or more of the issued and outstanding stock of a corporation. The DEP regulations establish a rebutable presumption that a person who owns more than 50% of the stock of a company holds a controlling interest. 
Holders of less than 50 percent of the issued and outstanding stock may also be deemed to have a "controlling interest" if they have the power, either directly or indirectly, to direct or cause the direction of the management and policies of the corporation. As a result, a chief executive officer holding less than 10 percent of the stock of the industrial establishment conceivably could single-handedly trigger the statute by selling his shares. 
Measuring who has a controlling interest in corporations having different classes of stock, such as preferred shares, shares with special voting rights or non-voting common shares, etc. can be more problematic The DEP has said that it will evaluate each transaction on a case-by-case basis to determine whether the transfer of a certain class of stock provides the new owner with the power to direct or cause the direction of the corporation. For example, the ISRA regulation provide that a controlling interest may be evidence by the ability to direct the vote or disposition of pledged securities, which include stock, warrants and options, it is possible that a lending transaction where shares or warrants are pledged to the financial institution might constitute a change in the controlling interest of a corporation triggering the statute. To protect against this possibility, counsel should review pledge agreements and make sure that the borrower retains the right to vote its stock so long as there is no default in the terms of the loan agreement.
Moreover, since the regulations provide that a transfer of the controlling interest may occur in a series of unrelated transactions, a corporation that is actively traded on a public stock exchange may have to comply with the statute although the DEP has said that it will not review stock transactions involving passive shareholders.26 Nevertheless, counsel should consider all retroactive stock transactions that date back to the date ECRA went into effect to determine if there has been a change in the controlling interest of the corporation.

C. Sale of Controlling Interest-Asset Transfers

Under the ISRA regulations “transferring ownership or operations” includes the sale or transfer of more than 50% of the assets of an industrial establishment excluding real estate during a give year period measure on a constant, annual date specific basis. 
 In developing this definition, the DEP borrowed from the Bulk Transfer Act of the Uniform Commercial Code. The term excluded sales or transfers of equipment or machinery that needed to be replaced, and the modification or retooling of existing equipment or machinery. Like stock transfers, the sale of controlling assets can be one transaction or a series of unrelated transactions. 
The current ISRA regulations exempts from the definition of “transfering ownership and operations” any transfer of personal property by replevin or seizure pursuant to a valid security agreement, collateral assignment or other lien where the personal property served as collateral for the security interest and the purpose of the transfer is to exercise the secured party's rights in the collateral. In the past, DEP has interpreted a bank's repossession of inventory or receivables constituting more than 50 percent of the assets to be a triggering event. Holder’s of security interests in an industrial establishment are not considered to be ISRA owners unless the holder of the security interest loses its secured creditor liability exemption under the state superfund law or obtains title to the industrial establishment by deed of foreclosure, by some other form of deed, a court order or some othe process. 

D. Partnership Triggers

The sale of a partnership is raises the change in ownership issue. Under its old ECRA regulations, DEP determined that the sale of an entire interest of a general partner will trigger the statute even if the general partner owned less than 50 percent of the partnership interest. DEP's rationale was that since a general partner is jointly and severally liable for all partnership debts and obligations, the withdrawal of a general partner could substantially impact the ability of the partnership to comply with the statute. In most cases, though, the DEP recognized that transfers of a limited partnership interest would not trigger ECRA.

Under ISRA, the sale or transfer of an interest of a general partnership in a general partnership or in a limited partnership or the sale or the transfer of a limited partnership interest in a limited partnership where the limited partner is liable for the limited partnership will be considered a “change in ownership” when any of the following conditions occurs:
•	The transactions results in the change of the general partner or limited partner liable for the limited partnerhip holding the controlling interest in the direct owner or operator of the industrial establishment;  
•	The transactions results in the change of the general partner or limited partner liable for the limited partnerhip holding the controlling interest in the direct owner or operator of the industrial establishment; or
•	There is a 10 percent reduction in the assets available for remediation as a result of the transfer.

Another “change in ownership” will take place when there is a sale or transfer of the sole general partner’s entire interest in a limited partnership where one of the following takes place;

•	the limited partnership is the direct owner or operator of the industrial establishment, or 
•	the limited partnership has a controlling interest in the indirect owner whose assets would be available for remediation

E. Leased Industrial Establishments

One of the most troublesome areas of ISRA/ECRA has been how to allocate compliance and cleanup obligations between a landlord and a tenant. 
In the past, landlords have attempted to impose ISRA/ECRA compliance on their tenants by relying on the standard lease provisions requiring tenants to comply with all federal, state and local laws. Tenants, however, have argued that they should not be responsible for contamination existing on the property before they occupied the site or that has migrated onto the facility from adjoining properties.
Under ISRA, the landlord, as owner, and the tenant, as operator, are jointly liable. In the past, DEP took the position that the party that caused the triggering event would be the party primarily responsible for compliance. Under this interpretation,  a tenant that terminated or transferred its operation, gave written notice of a lease termination, filed a bankruptcy petition, or filed or had a receivership action filed against it would be primarily responsible for ECRA/ISRA compliance. If the primary party failed to comply with ECRA, the other party would be responsible for compliance. This often resulted in inequities when a tenant went out of business and an absentee landlord was required to remediate the site, or the tenant proceeded under ISRA and was forced to deal with inactive underground storage tanks that were used by a prior tenant. 
Now, DEP will consider both the tenant and landlord responsible for ISRA unless there is an express lease provision that clearly allocates the liability for compliance with ISRA or ECRA to one of the parties. If ISRA has not been complied with, the ISRA regulations now allow a landlord or tenant to petition the DEP to seek ISRA compliance from the other party pursuant to the terms of a lease. The petitioning party must submit a written request to the DEP and provide a copy of the signed lease. If the DEP determines that the lease clearly allocated ISRA compliance to one of the parties, the DEP will pursue ISRA compliance against that party. If the DEP determines does not clearly define the responsibilities of the parties, the  DEP may compel compliance from both parties     

F. Closing of Operations

Under ISRA,  “closing operations means” at least a 90 percent reduction in the total value of the product output from the entire industrial establishment as measured on a constant, annual date-specific basis within a five-year period. In the case of industrial establishments where product output is undefined, a cessation of operations is defined as a 90 percent reduction in the number of employees or a 90 percent reduction in the area of operations within any five-year period provided.  
The phrase "constant annual date-specific basis" means that the owner or operator must maintain annual records of its output or number of employees or areas of operation and then compare this data against the four preceding years. The owner or operator has the choice of date that must be used for the start of the five-year period.
The DEP may approve a waiver for any owner or operator who demonstrates a good faith effort to maintain and expand product output, the number of employees or the area of operations of the affected industrial establishment. A temporary closure of an industrial establishment that exceeds two years will be considered a closing of operations.
Industrial establishments that are subject to RCRA closure or post-closure are exempt from ISRA. DEP has narrowly construed this exemption under ECRA so that it only applies to those portions of a facility that were subject to the closure and post-closure requirements. 
Does the continued storage of hazardous substances after a business ceases active operations constituted a closing of operations?. In In re Fabritex Mills, Inc., the DEP brought an enforcement order against a company for failing to comply with ECRA. The company argued that it continued to use the facility as a drum storage area. However, DEP construed leaving unlocked and unlabeled barrels of hazardous substances as an abandonment of hazardous substances and not "continued storage." The court deferred to the DEP's interpretation that this amounted to a cessation of operations and found that ECRA had been triggered. 
	Another type of closing of operation is the closure for health or safety reasons. The ECRA regulations originally provided that industrial establishments that became non-operational because of fire, explosion, or similar events would trigger ECRA only if there was a release of hazardous substances or wastes. Under ISRA, this term covers closures for health or safety reasons as a result of a judicial proceeding or final agency action. 

G. Bankruptcy Triggers

The ISRA regulations provide that the filing of a Chapter 7 liquidating plan or the conversion of a Chapter 11 plan to a Chapter 7 plan will constitute a “closing of operations” that will trigger ISRA. In the past, DEP frequently attempted to have the proceeds of the sale of assets of the debtor set aside to assure compliance with ECRA. However, a number of courts have found that when personal property is to be sold, the sale is not an ECRA triggering event. Therefore, DEP did not have the authority under ECRA to block the sale and distribution of the proceeds to the debtor's secured creditors. The common thread of these cases seems to be the concept that the term industrial establishment is limited to real property and not the personal property of the bankruptcy estate. However, the debtor will still have to comply with any orders issued by DEP to comply with ISRA. 

H. Condemnations and Tax Foreclosure

ISRA provides that the sale, transfer or transfer of an industrial estbalihsment prusuant to a condemnation proceeding commenced under the state Eminent Domain Act will not be considered a closing or transferring of operations or ownership. 
The municipality that takes title will not be responsible for complying with ECRA. Instead, the previous owner or operator of the industrial establishment would remain responsible for complying with ECRA.If the municipality remediates the property, the clean-up costs would be a debt of the prior owner and the municipality could file a lien in the amount of the clean-up costs. If the municipality elects to convey the property, it would be required to notify prospective purchasers in writing that the property could be subject to ECRA. Partial condemnations were handled under the limited conveyance provision so that a partial condemnation for more than 20 percent of the total value of the industrial establishment will trigger ISRA. In Warren County V. Estate of Frank Percarpio, an estate was required to comply with ECRA when the county condemned the property of the estate for the purpose of building a resource recovery plant. 

4. ISRA Application Procedures

The process of determining whether ISRA applies to a particular transaction is known in ISRA parlance as an "Applicability Determination." Under ECRA, if all three preconditions are met, the owner or operator of an industrial establishment had to comply with a complex and time-consuming approval process before the establishment can be closed or transferred. ISRA has streamlined many of the old ECRA procedures and has established an expedited review for certain situations.

5.  -Initial Notice

Within five days of one of the ISRA triggering events, the owner or operator of the industrial establishment must file a General Information Notice (GIN) with the DEP. The GIN requires very general information, including the name and address of the owner and operator of the site, a brief description of prior operations, description of the triggering event, copy of the executed agreement or instrument of transfer, or the public announcement of the transfer or closure and a list of environmental permits held by the facility, as well as any enforcement actions taken against it.
Following submission of the GIN, applicants simply have to follow the technical regulation established by the DEP for performing a site remediation. These cleanup regulations divide remediation into several phases: the preliminary assessment (PA), site investigation (SI), the remedial investigation (RI) and the remedial action (RA). The PA is designed to identify areas of environmental concern (AOCs). The purpose of the SI is to determine if any of the AOCs have contamination above state cleanup standards. An RI must be conducted at any of the AOCs where contamination exceeds cleanup standards. Based on the results of the RI, a remedial action workplan (RAW) may also be required. The RAW presents the data known about the site, identifies the appropriate cleanup levels and describes the proposed remedial action.
Under ISRA, applicants are allowed to perform the site characterization process (PA, SI, RI) without submitting these reports to the DEP for approval. ISRA also allows applicants to commence soil remediation without prior DEP approval if the cleanup is intended to meet restricted or unrestricted soil cleanup standards without the use of engineering controls. However, if remediation of groundwater or surface water is required, the applicant must submit a RAW to the DEP for approval prior to implementing any RA.
An ISRA applicant does not have to complete all four phases before seeking a negative declaration. For example, if the PA does not show any AOCs, then the applicant may submit a negative declaration for approval. Once the applicant can demonstrate that there are no discharges of hazardous substances or wastes at the site or that none have migrated from the site in excess of state cleanup standards, the applicant may submit a proposed negative declaration for approval by the DEP. The results of the PA, SI, RI and RA must be submitted to the DEP along with the proposed negative declaration. The DEP is required to render a decision on the negative declaration within 45 days of its receipt. DEP approval will be in the form of a "No Further Action" (NFA) letter.

6.  -Transferring Ownership or Operation Prior to ISRA Completion

An owner or operator of an industrial establishment who wishes to transfer ownership or operations prior to the approval of a RAW or negative declaration must enter into a remediation agreement. This remediation agreement will include an estimate of the remediation costs, a certification of the owner/operator's liability to perform the remediation in accordance with the time tables and manner under ISRA and its liability for penalties, evidence of a remediation funding source and other requirements the DEP may establish regarding the submittal of the PA, SI, RI and the RAW.
A third party who is not an owner or operator of an industrial establishment may enter into a remediation agreement. However, the because the ISRA regulations originally provided that anyone who executed a remediation agreement including a purchaser, transferree or mortgagee would be strictly, jointly and severally liable with the owner or operator of the industrial establishment for compliance with ISRA, third parties were discouraged from entering into remediation agreements. DEP recently deleted that language. Now, the ISRA regulations simply provide that the DEP will allow a third party who is not the owner or operator to sign a remediation agreement only if it contractually agrees to perform the entire site remediation regardless of the level of participation by the owner or operatior. Thus, the third party’s liability would be limited to a breach of contract action. 
Under ECRA, DEP would use a worst-case estimate of the cleanup costs The lowest financial security that would be required by the DEP for an ACO was $100,000 even when the data indicated there was no risk of contamination. If groundwater contamination was likely, the financial security would be approximately $500,000 for each source of contamination. This could be particularly burdensome to small business since ordered parties essentially had to have two pools of money available for a cleanup: the financial assurance and the cleanup itself. As a result, DEP instituted a policy that allowed parties to reduce their financial assurance as a cleanup progressed to reflect the remaining remedial costs.
Under ISRA, the Remediation Funding Sources to be used for remediation and also expanded the kinds of financial assurance that were acceptable to include a line of credit, environmental insurance and a self-guarantee.  

7.  De Minimis Generator Exemption

Industrial establishments handling or generating only small amounts of hazardous substances or wastes can apply for an exemption from the provisions of ISRA .The owner or operator of an industrial establishment may seek a waiver exempting it from ISRA if:
•	the owner or operator did not generate, store, treat, dispose or otherwise handle at any one time more than 500 pounds or 55 gallons of a hazardous substance or waste or any mixture of non-hazardous and hazardous substances or wastes, and
•	the total quantity of hydraulic or lubricating oil at any one time during the owner or operator’s period of ownership or operarion does not exceed 220 gallons.
•	For an industrial establishment with an SIC Code of 5122, the total quantity of hazardous substances shall not include any mixture containing hazardous substances if the mixture is in final product form for retail or whole distribution.

8. Expedited Compliance Options 

	ISRA established a number of procedures for obtaining expedited review of industrial establishments.

A. Expedited Site Review
The owner or operator of an industrial establishment may be able to apply for an expedited site review which authorizes the the closure or transfer of the industrial establishment without further remediation. This approval is available when the industrial establishment received a negative declaration or NFA letter in the past and no discharge has occurred since that time or any subsequent discharge has been remediated to the satisfaction of the NJDEP. The agency will approve the application by issuing another NFA letter or may disapprove the application and require additional investigation. 

B. Area of Concern Review

	The owner or operator may reinvestigate an AOC where a remediation had been previously conducted and approved by the Dep without having to reinvestigate the other AOCs at the facility and without DEP oversight. The DEP will approve the request by issuing another NFA letter or disapprove the application and require additional remediation in the AOC. 

C. Regulated Underground Storage Tank Waiver

If the owner or operator of the industrial establishment can establish in the PA that the only AOC is a discharge from underground storage tanks and that the remediation is being implemented pursuant to an order of the DEP's Bureau of Underground Storage Tanks, then ISRA will not apply. The owner or operator may close operations or transfer ownership or operation of the industrial establishment without complying obtaining approval of an RAW or negative declaration or having to enter into a remediation agreement.

D. Remediation in Progress Waiver

	An owner or operator of an industrial establishment may apply for a waiver from compliance with ISRA if  a prior owner or operator is conducting an on-going remediation, that no discharges have taken place during the time that the owner or operator’s held title or occupied the property and there is an adequate funding source available to finance the estimated costs of the remediation. The DEP will either approve the application by issuing an authorization letter or disapprove the application and require the owner or operator to remediate the site.

E. Limited Site Review

Where the site was remediated in the past but a new discharge has occurred that has not been remediated or the remediation has not yet been approved by the DEP, an owner or operator may also obtain a limited site review in which the DEP will only require remediation of the new discharge. ISRA review will be required for the old AOCs that were previously remediated. The DEP will either approve the application by issuing a NFA letter or disapprove the application and require additional remediation of the site.       

F. Minimal Environmental Concern Review-

	An owner or operator of an industrial establishment may be authorized to close operations or transfer ownership or operations of the industrial establishment without having to obtain approval of a RAW, a negative declaration or a remediation plan where the owner or operator can show that there are no more than two AOCs with contamination above applicable remediation standards and that the remediation could be completed within six months. However, the required remediation cannot involve surface or groundwater. The owner or operator would still have to submit a PA, SI and RI. They must also show that discharge does not pose an immediate threat to human health because of proximity to a drinking water source, or because of the location or complexity of the discharge. The DEP will either approve the application by issuing an authorization letter or disapprove the application and require additional remediation of the site. 
Withix six months of receiving the approval of the application, the owner or operator must submit an RA indicating that the cleanup has been completed. If the applicant determines that it will not be able to complete the remediation within the schedule, the applicant shall notify the DEP and may have an additional 120 days to complete the work. The DEP may rescind the letter approving the minimal environmental concern review if the applicant fails to implement within the additional time period and may require that a new remedial workplan be submitted. The DEP will approve the remediation of the site by issuing a NFA letter.  

G. Limited Conveyances

The owner or operator of an industrial establishment may apply for a certificate of limited conveyance to transfer a portion of the industrial establishment without having to conduct a remediation of the entire facility if the sales price or market value of the property to be conveyed, together with any added diminution in value of the property, does not exceed one-third of the total appraised value of the industrial establishment before the conveyance and the unconveyed portion remains subject to ISRA. The appraisals must have been performed within one year of the submission of the application for a certificate of limited conveyance. 
If the DEP issues a certificate of limited conveyance, the owner or operator shall remediate the portion of the site being conveyed as well as any discharges that have migrated onto the conveyed parcel from the remaining portion of the industrial establishment. Any certificate of limited conveyance granted under ISRA shall be valid for three years.
Owners may transfer parcels in excess of the one-third limitation so long as the additional conveyance does not constitute a closing of operations or transferring of ownership and that the proceeds from the additional conveyance are placed in a trust to fund the remediation of the additional property to be conveyed. Any surplus funds must be placed in a remediation trust fund for the unconveyed property.

H. Remedial Action Workplan Deferral

	DEP may authorize an owner or operator to transfer ownership or operations of an industrial establishment without having to preparation, approval and implementation of a remedial action workplan. To obtain such relief, the other party to the transaction must certify that the industrial establishment will continue to be put to substantially the same use. This will be primarily be established by the SIC code. The applicant must also submit copies of the PA, SI and RI as well as a cost estimate for the remedial work. In addition, the transferee must sign a  certification indicating that it has reviewed these reports and has the financial resources to implement the RAW. Approval of the application does not mean that DEP has approved the workplan. If the DEP disapproves the application, the owner or operator will have to submit a workplan for DEP approval. 

9. Letters of Non-Applicability(“LNA”)
 
Shortly after ECRA went into effect, lenders, title insurers and even purchasers began requiring written confirmations that a specific transaction or property was not subject to ECRA. Because of the confusion over what transactions were covered by ECRA, many attorneys refused to draft such opinions without some written determination from the DEP.
ISRA preserved the LNA process. An LNA may be obtained by submitting a notarized affidavit asserting that ISRA does not apply because the particular transaction is not covered by ISRA, the industrial establishment does not fall within a covered SIC number, or there are no hazardous substances at the industrial establishment. While any interested person may request an LNA, the completed affidavit must be executed by the owner or operator of the industrial establishment. An LNA can be obtained in about three to four weeks. The LNA, however, is of dubious value because it is issued solely on the information provided in the affidavit and any change in the stated facts could alter the DEP's non-applicability determination.
 
10.  Authorization Letter

	The DEP will issue an authorization letter to the owner or operator confirming that they may proceed with the transfer of the ownership or operation of the industrial establishment or close operations. The agency will issue this letter upon the issuance of a remediatio agreement, approval of an underground storage tank waiver application, remediation in progress waiver application, minimal environmental concern waiver application and a remedial action workplan deferral application. The authorization letter may in the form of one of those decision documents. Issuance of the letter does not relieve the owner or operator of its obligations to remediate the industrial establishment.

11. Penalties

Failure to comply with the provisions of ISRA can result in voiding a sale of property and fines of up to $25,000 per day . In addition, the transferor will be strictly liable for the cleanup and will be liable for any consequential damages resulting from the cancellation of the transaction. Any individual giving false information or any officer knowingly directing or authorizing violations of the law will be personally liable for the ISRA penalties.
The DEP has taken an aggressive posture against companies that fail to submit ECRA/ISRA notices or that fail to submit sampling or clean-up plans. Indeed, DEP assessed a company $85,000 for submitting late sampling results. The agency will often assess fines of over $10,000 for even minor violations.

12. Buyer's Remedies for ISRA Non-Compliance

ECRA provided that a buyer could void the sale or transfer of an industrial establishment if the seller fails to comply with ECRA. However, ECRA also provided that a seller would be strictly liable for all clean-up costs and all direct or indirect damages resulting from its failure to implement a clean-up plan.. The New Jersey Supreme Court ruled that rescission is not the sole remedy available to a buyer. Instead, the court said that ECRA also contained an implied private right of action and that a buyer could elect to recover clean-up costs that it may have incurred as a result of the non-compliance with ECRA in lieu of rescinding the transaction. However, the Court noted that ECRA did not pre-empt the law of contracts and that parties to a transaction may allocate such risks and waive the private right of action.
ISRA modified the right to void a transaction. The DEP's right, which was rarely exercised, was completely abolished and a buyer may void a transaction only after it gives the seller notice of failure to comply with ISRA and allows the seller a reasonable time to cure.

(c) Copyright 2000 Lawrence Schnapf